Jones Lang LaSalle EMEA Research Blog

Posted by: Christoph Härle
CEO Continental Europe - Jones Lang LaSalle Hotels
Jones Lang LaSalle Hotels

I departed from Munich with 15 cm of new snow and landed in warm, sunny Istanbul last Monday. Contrary to my expectations, Istanbul was unusually quiet upon my arrival and I was welcomed with spectacular fireworks. I later found out that the fireworks were less in my honour and more due to the Turkish Independence Day on 29^th October. The Hospitality Summit, where I was speaking, was held at the Ceylan InterContinental Hotel and brought together a number of representatives of hotel companies, including Nikki Beach Resorts, Corinthia, Starwood and Accor with the event focussing on guest trends and the luxury hotel landscape in Turkey, Central and Eastern Europe and the Middle East.

Istanbul’s appeal as an event destination has grown considerably over the last couple of years, going hand in hand with less rigid visa requirements for Turkey. Luxury is currently the trend in Istanbul with the majority of hotel supply in terms of room count (37%) concentrated in the 5 star segment.

In line with this, a number of luxury hotels recently opened in 2012, including Le Méridien (where we helped negotiate the Management Agreement) and Radisson Blu, with further projects currently in the pipeline and due to open in 2013, such as the Shangri-La and Raffles. Average rates and occupancy in Istanbul’s luxury segment recorded a significant increase in 2010 and rose further in 2011 to reach EUR 238 and 74.0% respectively, resulting in a room yield of EUR 176 (up 12 % compared with 2010).

The market has remained strong in 2012 with average room rates reaching EUR 258 and occupancy at 71.9% in the year to September 2012 (a 0.3% increase in room yield compared to the same period a year ago).

Investor interest is high for Istanbul. However, due to the significant gap between buyer and seller expectations and the fairly opaque market, no notable transactions have been recorded in 2012. Last year saw the sale of two smaller hotels in Istanbul, the Taksim Keban Oteli and the Kartanesi Otel, both bought by local Turkish investors for an undisclosed amount.

My next stops are Berlin, Zurich and London, so watch out for more European hotel gossip.

Posted by: Christoph Härle
Hotels Research
Jones Lang LaSalle Hotels

Almost 300 days down on being CEO Continental Europe, I experienced a somewhat different side to European efficiency this week. As a speaker at the RHIC (Russian Hotel Investment Conference), one is initially faced by the challenges of getting a visa for Russia (luckily they still tolerate my presence there, one of my panelists at the conference had to cancel last minute due being denied an entry visa). Having overcome the initial hurdles in getting there, I was overwhelmed by the traffic. On day 1 of the conference, the 5 km journey from the Ritz Carlton to the Radisson Royal took 2 hours. On day 2, the same taxi ride only took 8 minutes. Figure that!

Contrary to the traffic – Moscow is one of the top-performing markets in the EMEA region despite moderate average daily rate (ADR) growth since the big dip in 2009. The overall downturn in tourism in 2009 was quickly overcome by a strong recovery in 2010 (20% growth year-on-year in the total number of hotel guests accommodated and bed nights sold), followed by another strong year in 2011 (14% growth year-on-year in hotel guests and 8% growth in bed nights).2010 also welcomed a major influx of new hotels (over 2,000 rooms of mostly higher-grade quality) and another some 1,000 rooms during 2011 / 12 has given more choice to hotel guests, but has also kept room rate growth firmly in check.

Development activity is still subdued, with only 5,000 rooms currently in planning and due for completion by 2015. The recent expansion of supply will make it more difficult for hotels to increase rates at historic levels, but the profitability of assets remains far healthier in Moscow than in other markets, driven by the city’s relatively low cost base. A sudden surge of investment activity registered during the last 20 months, mostly amongst domestic investors, indicates that the level of interest in the Moscow hotels, both operating and at final stages of development, is high. Despite the shortage of sellable assets, recent transactions included a number of milestone deals, such as the sale of the Ritz Carlton, the Courtyard by Marriott and the public auctioning of the landmark Metropol Hotel. Desired yields for hotels in Moscow range from 9 to 11%, although similar to many European key destinations, investors tend to show a higher yield tolerance for trophy assets in the range of 5 – 7%. By the way, Jones Lang LaSalle Hotels acted as an advisor on the Ritz Carlton and Courtyard by Marriott transactions.

My next EMEA pursuit with be the Hospitality Summit in Istanbul in two weeks…more to follow then….I am beginning to wonder if Istanbul’s traffic can beat Moscow?

Posted by: Jennifer Townsend
Information & Data Research
Jones Lang LaSalle EMEA Research

Winter weather is drawing in- I took the plunge and pulled my winter wardrobe from its storage ready for the switch from flowery frocks to dark woollens. But what was it I saw as I looked out the window– sunshine. Nothing is nicer than when you are all prepared for darkness and grey clouds and a shard of sunshine breaks through – much like this quarter’s Jones Lang LaSalle UK Property index results…

The property index is a quarterly publication tracking the performance of a sample of over 700 properties valued at over £7.8 billion in Q3 2012. It has proved to be a good indicator of the market over time and is one of the longest running records of property performance spanning over thirty years. After showing “grey weather” in previous quarters a ray of sun came through in Q3 with the following headlines:

• Despite the economic uncertainty, total property returns increased to 1.3% in 2012 Q3 compared with 0.4% in Q2. This was the largest quarterly increase since Q4 2011.
• On a sector level, retail recorded the strongest returns at +1.3%, with properties in prime locations and retail warehousing the largest contributors to growth.  Offices recorded returns of 1.2% and Industrial 1.0%.

However, the British weather is nothing if not unpredictable. As I was ready to put away the coat and scarf and pull out those shorts again, the sun disappeared.  In parallels, whilst there was some sunshine in the index results, there was also some rain. Annual returns for 2012 to date were still significantly below previous years at 3.8%, compared with 8.4% at the same time in 2011. Capital growth also remains at -2.9% on an annual basis, as it continued to decline for the fourth consecutive quarter.

Investors will need to watch the weather conditions carefully going forward and I won’t be putting on my shorts just yet…

Posted by: Jon Hubbard
CEO – Northern Europe Hotels
Jones Lang LaSalle Hotels

With the Olympics fast approaching, we are excited to report that London continues to have one of Europe’s best performing and most robust hotel markets. STR Global have confirmed that for the first five months of 2012, despite the market adding 2,000 rooms to its available supply,  revenue per available room (RevPAR) was up by 3.1 percent compared to the same period in 2011. What’s more, the year shows continued activity, with AM:PM reporting that new hotel openings will bring an additional 5,000 rooms to the Capital.

With an estimated 300,000 additional foreign visitors during the Olympic Games, there is expected to be a 60 to 70% increase in average daily rate, compared to the same period in 2011.  However, the London Organising Committee of the Olympic and Paralympic Games (LOCOG) recently released 8,000 unused hotel rooms to the public market and as hotel rooms are released, we expect a slight decline in the room rate premium, which may attract visitors who were previously deterred by high prices. Days before the event, there is still availability in all hotel categories with room rates ranging from £60 to over £1,000 per night.

More positive news is that both the budget and the upscale segments are growing. At the budget end for example, Premier Inn and Travelodge are adding close to 2,000 additional bedrooms to the existing stock. 

Although London hoteliers could experience a record year in 2012, they may face more challenging market conditions in 2013.  A further 5,400 rooms are scheduled to come online in 2013 (a 4.8 percent supply increase over 2012). This is a significant increase in supply, as the average yearly supply growth rate was just 2.4 percent between 2003 and 2011. Our most recent Hotel Investor Sentiment Survey (May 2012) ranked London the best market for short term trading, although sentiment for medium term trading had softened, as the high demand from the Games period is not expected to be sustained, while hotel supply continues to grow.

Overall, London has proven to be a very resilient market, with hotels posting an annual RevPAR growth of 5.8 percent during each of the last five years. RevPAR growth is expected to slow in 2013, but will remain robust in comparison to other major western European cities. So all in all London looks set for a strong period ahead…stay tuned for future updates.

Posted by: Jennifer Townsend
Senior Analyst – Information & Data Team
Jones Lang LaSalle EMEA Research

I was saddened to hear of the break-up of Tom Cruise and Katie Holmes and wondered what might have led them to this. They say that one of the main routes to a loving relationship is to understand and communicate with each other. Given the tighter economic climate with business harder to find, it is more important than ever to make a concentrated effort to learn as much as possible about your client’s business.

There are always plenty of opportunities to get a better grasp on the business your clients are involved with. Within Research we take this seriously. Using a global news database, we can keep on top of industry and company news and identify potential opportunities as they happen. If the company is public, there is a wealth of information freely available – from company accounts, investor presentations, selected broker reports and of course the company websites. From this we can build a detailed picture of the company, its’ financial position, locations, strategic direction and its real estate issues.

In order to assimilate this information more easily, we produce in-depth company reports. These include using business analysis tools such as SWOT (strengths, weaknesses, opportunities and threats) analysis, peer comparison mapping alongside detailed financial analysis. This analysis can be used to create a picture of the organization and identify where it can grow, where it needs to build, and what it should watch out for.

All this information means we are able to fully understand what the client hopes to achieve, their strengths and weaknesses, who they are competing against and the environment in which they are conducting their business. With this knowledge you can develop meaningful solutions and build lasting relationships.

For more information on our business intelligence capabilities contact Jennifer Townsend

Posted by: Julie Collins
Retail Research
Jones Lang LaSalle EMEA Research

With less than 70 days to go now until the London Olympics, retailers will be hopeful that the combination of the Queen’s Jubilee (and a welcome additional bank holiday); the Euros and the Olympics will lead to an increase in consumer spending.  Pub and restaurant operators will also be looking to the summer festivities to make up for what has been a soggy start to the early summer.

The key questions are whether, given all the hype, spend will increase, and who will benefit?

Undoubtedly grocery spend will increase as a result of Jubilee street parties, Olympics bbqs and football gatherings.  Sainsbury’s and Waitrose are currently looking well placed to take advantage of this additional spend.  Their recent form suggests that customers are happy with the service and quality provided, and many non-shoppers will see the summer celebrations as a perfect opportunity to trade up from Tesco, Asda and Morrisons. Whilst Tesco have replaced their ‘Tesco Value’ range with ‘Everyday Value’ and have brought back their Clubcard Exchange promotion, they have limited time to change their poor customer perception, and gain sales from their competitors.

John Lewis is likely to continue its run of form with strong sales of TVs and merchandise for both the Jubilee and the Olympics.  The windows of John Lewis Oxford Street currently show a strong Cath Kidston / Emma Bridgwater focus and a key highlight on all things ‘Union Jack’.  British retailers will benefit from the surge in patriotism associated with the summer events, for example, the ‘Corgi’ women’s tops in Next and the Jubilee tea cosy’s currently on sale in M&S.

Who will struggle to benefit from the ‘summer of fun’?  Well, big ticket retailers are likely to continue to suffer.  If grocery, TVs and Jubilee / Olympics merchandise spend are all set to increase, then spending elsewhere simply has to be squeezed with the economic climate as it is.  With shoppers at Jubilee parties, watching the football or at the Games, spending on DIY or new sofa purchases will be less likely this summer.

Summer 2012 offers a number of retailers a real prospect to grow sales.  Availability of products is imperative for supermarkets, and the weather will no doubt play its part in sales.  Retailers at Westfield Stratford City have an amazing opportunity to convert visitor numbers into actual spend; appealing window displays and short queues will be fundamental for this.  It remains to be seen how successful Team GB and England will be, but retailers will certainly be hoping for a golden summer.