Real estate
Real estate

European Hotel Sector: Creating value through transformation

April 8, 2024
Graeme McCormack
Head of Fund Management – Hotel & Leisure Division
Hugo Steen
Head of Investments – Hotel & Leisure Division
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The first step in a value-added investment strategy is finding undervalued or illiquid hotels with good micro locations in attractive markets. An attractive market is one that has multiple demand drivers, where hotel performance has been strong, pricing is attractive, and new supply is limited. An attractive property is one that is in a strong strategic location with a building structure that can be optimised to leverage local demand drivers and achieve increased profitability. The property should be underperforming relative to similar properties in the market. Explore how to identify such opportunities in our second paper in this series.

Key takeaways

  • The travel landscape has changed considerably over the last decade. Demand has risen in aggregate and new types of demand have emerged. Consumers are increasingly prioritising experience and hotels that offer consistently reliable service, alongside local authenticity. Nearly half of the market spend comes from Millennials and Gen Z, whose preferences have historically not been well addressed. Value creation is about capitalising on these trends to boost hotel profitability.

  • The opportunity lies in transforming the property to better suit a particular demographic given changing demand drivers. This could involve brand repositioning, or a targeted capex initiative such as sustainability-focused refurbishment, or an operational change such as implementation of technology.

  • Whatever transformations value creation involves, specialist skills are essential for maximising the real estate investment and the hotel investment. From choosing the ‘right’ brand for the location and market, to determining which capex initiatives will generate the best return, to managing operations for top and bottom-line performance, specialists’ market- specific and domain-specific expertise maximises value creation.

Specialist' market-specific and domain-specific expertise is essential to maximise value creation in the real estate investment and hotel investment. To learn more, download the full paper.

Disclosure

Risk Considerations
Investing involves risk, including possible loss of Principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.

International investing involves greater risks such as currency fluctuations, political/social instability, and differing accounting standards.

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MM13777 | 12/2023 | 3226286-022025

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