European hotel price index - 2020 edition

Executive Summary

EHL’s Real Estate, Finance & Economics Institute presents the first version of the European Hotel Transaction Price Index. This project aims to contribute to increased transparency in the European hotel industry by publishing the index on an annual basis. This first version of the index is based on a total of 1247 hotel transactions across Europe since 2007. In 2019, European hotel transactions prices increased by 7.7% vs. the prior year on the back of a record transaction volume of EUR 25.6 bn. For the first time, the index clearly surpassed its previous peak from 2007.

The 2019 version of the index does not yet account for the impact of COVID-19. Due to the direct effects of the pandemic on global tourism and business travel, the current crisis is likely to have significant impacts on hotel transaction prices. Some lessons may be drawn from the 2009 Global Financial Crisis. The development of index reveals that, on average, European hotel transaction prices have fallen by 33.9% compared to their previous peak in 2007. This drawdown is comparable to the price decline experienced by US hotels over the same period. In total, it took European hotel transaction prices nine years until fully recovering to previous highs from 2007.

A common observation in commercial real estate markets is that transaction activity drops significantly at the beginning of a crisis, as solvent owners are reluctant to sell while potential investors are cautious to buy. As a result, initial transaction activity is often limited to opportunistic investors buying from distressed sellers, often at significant discounts.

At the peak of the Global Financial Crisis in 2009, the European hotel transaction volume was almost 50% lower than in 2007 (€3.7 bn vs €7.1 bn).

Recent transaction data by Real Capital Analytics (RCA) shows that the liquidity in the European hotel transaction market has again dropped significantly. Only 113 hotels have been sold globally between April and late June, representing an 86.7% drop from the second quarter one year ago. While part of the drop may be attributed to work-from-home restrictions, it is evident that the hotel investment market is facing yet another crisis. We look forward to providing an update accounting for the impact of COVID-19 on European hotel transaction prices in the next series of the index.

Data and Descriptive Statistics

The EHL Hotel Transaction Price Index is based on the whole spectrum of European hotel transactions recorded in RCA’s commercial real estate transaction data base. To increase the reliability of our index estimates, we focus on confirmed transaction prices of single-hotel transactions from cities with at least five transaction observations.

The 2019 version of the index is based on 1,247 hotel transaction across 25 European countries between 2007 and 2019. The data basis is representative of the diversity of the European hotel sector. The majority of transactions occurred in the UK (28%), Germany (22%), France (8%) and Spain (6%). 73% of transactions are from metropoles with more than 500,000 inhabitants, with the remaining transactions occurring in smaller cities. The share of full-service hotels as opposed to limited-service hotels is 64%. Most hotels are associated with major brands, while only 38% of them are independent.