• Into orbit after a frenzy

Hotel investment markets headed into orbit in 2006 having already been driven into a frenzy in 2005, according to the latest study by HVS.

The statistics provide further evidence for those arguing that the cycle is at or close to its peak.

Carefully avoiding calling the top of the market, co-author Karen Smith said: “Will we look back in 12 or 24 months’ time and comment on how the signs of a market stabilization were there, and wonder why we missed them?”

The report, European Hotel Transactions 2006, found that European hotel asset sales were up 30% in 2006 compared to 2005 and almost double the level of 2004.

The biggest deal by far last year was the marriage of the two Hiltons, with Hilton Hotels Corporation of the US buying the hotel division of Hilton Group, the London-listed company, for €4.8bn.

There is a strong flow of money into the European hotel market and it is coming from all directions. Investors from the US are being enticed by the greater differential achievable in Europe between the cost of debt and hotel yields than is available in North America.

Asian investors continue to see investment in Europe as a lower risk alternative to their own region and Europeans continue to embrace pan-European investment that has been made easier by the EU and the euro.

The pace of investment in hotels has driven the value of hotel assets, according to a separate study, also by HVS. The European Hotel Valuation index 2007 shows that on average hotel values across Europe went up by 9.4% in 2006.

All but two of the 28 markets in the study recorded value increases in excess of general price inflation. The fastest growth was in Moscow which showed a 20.6% growth in hotel values, the third year in a row in which it has grown by more than 20%.

What all this historic evidence cannot tell us is the shape of any future correction. In the absence of economic downturn or meatier interest rate rises, a slow, drawn out levelling-off seems most likely.

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