Welcome to the recovery party, Europe
 
Welcome to the recovery party, Europe
30 SEPTEMBER 2013 6:13 AM

It’s about time: Conferences on both sides of the Atlantic Ocean reveal a confidence among hoteliers that hasn’t been seen for five years.

Two weeks, two conferences, one mood. Finally.

European hoteliers finally are getting some of the post-recession love that their U.S. counterparts have been feeling for some time.

The 19th annual Lodging Conference in Phoenix and the Hotel Investment Conference Europe (Hot.E Conference) in London shared some of the same exuberance. Both sides of the Atlantic are feeling good about the state of the hotel industry.

Whether at the beer pong table at the annual Group One Partners/Roedel Companies kegger in scorching hot Phoenix or the refined and elegant Cornell University reception at the ultra-luxe Dorchester on Park Lane in pleasant London, there was a general feeling of long-awaited comfort.

The party started for the U.S. about three years ago. Europe, according to Vail Brown of STR, parent company of Hotel News Now, in Phoenix and Elizabeth Winkle of STR Global, sister company of Hotel News Now, in London, is finally seeing the demand growth the U.S. has been enjoying for 45 consecutive months.

Robert Seabrook, head of hotel transactions for Savills, said during the Hot.E conference there’s an uptick of interest in hotels from a variety of investors. “We’ve seen a huge appetite,” he said.

From Nashville, Tennessee, to Aberdeen, Scotland, optimism abounds. Those are two high-flying markets that are adding significant supply, and no one is waving the red flag for them just yet.

However, the European hotel community is careful not to be over indulgent in the early stages of the party. These people understand the early going is a fragile time in any recovery.

Bob Silk, relationship director of the hospitality and leisure team at Barclays Bank, said operators in Europe still have problems on the cost line, and online travel agencies are sucking a lot of cash out of the business. And like in the U.S., years of deferred maintenance is presenting capital expenditure issues for hotels around the globe.

With the remaining economic issues for the struggling European countries that border the Mediterranean Sea, no one is saying that it’s clear sailing for European hotels. But for the first time in at least five years, there’s hope and belief that the worst may be over.

The same can certainly be said for the U.S. While my esteemed colleague Ed Watkins correctly wrote last week that there was giddiness in the air in Phoenix, I don’t agree the industry will break past habits.

Developers will build hotels—that’s what they are paid to do and that’s what keeps the investment wheel turning. But as Michael Murphy of First Fidelity aptly said during the Hotel Data Conference a few weeks ago, overbuilding can’t happen overnight. While demand growth is slowing, it’s still growth. That can’t be bad. If it takes five years for any overbuilding to occur, as Murphy believes is the case, then we’re in good shape.
 
And, as Watkins reports in additional coverage from the Lodging Conference, the lack of debt flow that all but stalled development for the past few years is now a thing of the past.

“Lenders really like hotels again,” said Bill Grice, executive VP of Jones Lang LaSalle, which acts as an intermediary to source debt and equity for hotel deals. “As an asset class, it has outperformed every other major food group in commercial real estate in the past 18 to 24 months, and it continues to outpace even what some had considered being lofty expectations.”

The 5-year window that Murphy outlined puts us into 2018, which would make this cycle about seven years long in the U.S.—that’s about as good as anyone should expect during this age of black swans and unpredictable economic and geopolitical climates.

It’s difficult to fathom how long a European cycle will last. It first has to get over the hump and hit its stride in a recovery before thinking about when it will peak. But, there’s optimism in the air for the first time in several years, and that’s makes it much easier to hop-scotch to various conferences. Hoteliers are much more affable when they are confident, and confidence is the name of the game right now.

The opinions expressed in this blog do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

 

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