• Transaction boom set for 2007 and 2008

The boom in hotel transactions is set to continue into 2007 through to 2008, according to a new report by Jones Lang LaSalle Hotels.
   But full year 2006 profit figures from TRI Hospitality Consulting's HotStats survey suggests that strong revpar rises are not feeding directly through to the bottom line, meaning that many of these deals are going to come under severe stress.
   JLL said in its Hotel Investment Outlook 2007 that last year saw a record $72.5bn worth of hotel property transactions, up 62.9% on 2005, a year that was 60.9% higher than 2004.
   This year is expected to see a decrease on 2006 levels, thanks to a slowdown in portfolio deals, but the overall volume is still set to be robust.
   In Europe, $26.8bn worth of hotels changed hands during 2006. This year, thanks to chains having little left to sell, the volume is expected to \normalise\ at around $15bn.
   JLL said that yield compression had encouraged large chains to sell-up and thus driven deal volume. New investors have entered the market as other property asset classes became too competitive.
   The cash coming out of this rash of deals may not be as great as some investors were hoping, however. TRI's HotStats survey found that although revpar in London was up 8% in 2006, total profit per room grew by just 4.5%.
   The situation in provincial UK was even worse, with a revpar rise of 3.9% feeding through an increase in profits of just 0.6%. Higher payroll and utility costs were the main causes of this shortfall, with London seeing utilities up by 30% and wage costs up 8.1% and the provinces seeing utility costs up 25% and wages rising by 3.3%.
   With most forecasts predicting revpar growth to slow during 2007, profitability will come under even more pressure.
   And this is before higher borrowing costs are factored in. According to an analysis on general commercial property by Lambert Smith Hampton, yields began to rise during the second half of 2006. The expectation of rising interest rates was fingered as the main cause.

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