Euro vision: Hotel Investment Conference Europe 2014 report

What a difference a year makes. The global macroeconomic picture may be unchanged but the mood at 2013's Hotel Investment Conference Europe (Hot.E) was noticeably different.

Fears over a Greek exit from the euro dominated the conference in 2012, but, according to this year's opening speaker David Goodger, European director of tourism economics at Oxford Economics Company, the possibility of a Greek withdrawal is now just 3%. Hardly a sign of confidence, but it marks a general shift in the market and at the conference - namely, that things are at least unlikely to get worse.

The numbers certainly seem to support this. On almost all metrics the European hotel market is improving. International arrivals for Europe and its subdestinations have grown year-to-date for 2013, while current forecasts suggest transaction volumes have risen by 6% for the year, the highest level since 2007.

A group of investors from the International Hotel Investment Council reflected the new mood in one of the conference's opening panels. Accurately predicting a busy quarter for hotel transactions, the group spoke enthusiastically about capital levels and board-level confidence for transactions.

Bullish boardroom

The boardroom was given its own chance to speak later on, with three of the continent's leading figures - Michael Wale, president, Europe, Africa & Middle East, Starwood Hotels & Resorts Worldwide; Angela Brav, CEO Europe, InterContinental Hotels Group (IHG); and Puneet Chhatwal, CEO of Steigenberger Hotels - facing hard questions from Hotel Analyst editor Andrew Sangster.

While Michael Wale was forced to defend Starwood's decision to "shrink" the company by selling assets, Steigenberger's CEO reaffirmed his ambition to transform the regional player into a European group with representation in all the major gateway cities.

"We strongly believe in Germany as a backbone of Europe, but we believe in other countries too," he said. "European business is very strong as a whole and we see very strong growth in both our brands.

"[The hotel industry] has been very misled in the last seven or so years in that we have been told that it is all about pipeline," Chhatwal continued. "But at the end of the day, it is operating margins that are decisive to hotel company health. It does depend on your business model, but Steigenberger has been profitable for the last four years, which not many hotel companies can say. We look to balance growth with profitability."

A question was then put to Angela Brav on the relevance of brands in the future.

"People want brands more than ever before," she said. "IHG is growing because brands are becoming more relevant. The large hotel companies need to have their brands even stronger so that investors get great returns - and the customer gets the best value."

Despite Europe's underlying potential, the industry has a tendency to compare rates of growth with the US, something Brav argued is unwise. "We are not the Americas," she said. "Europe has its own business rhythm. What is that exact rhythm? That's the million-dollar question. We see us doubling our size in Europe - it's the number one destination the world wants to come to and we see it going nowhere but up. Of course, we will not see growth rates that you get to see in emerging markets. People who do not understand that will not get far in this industry. What we must aim for is measured, sensible growth."

With underlying potential so strong, tourism could play a huge role in the continent's economic revival. And yet many in the hotel industry feel politically under-valued. Asked if they could have one wish from their governments, all three of the panel pointed out that the industry didn't receive the necessary support, particularly with VAT, a large impediment to growth in the sector.

"Governments should understand that we employ huge numbers of people," Brav said. "So we have to get VAT tax under control."

The lenders

Whether or not banks are willing to lend has been one of the key issues of debate over the past few years. Cash buyers and financiers with underlying equity were one of the most visible images of the recession-era hotel market as bank finance suddenly dried up.

But that debate seems to be in the past. While nobody expects a return to the level of lending seen before 2007, from the evidence of this conference, gloomy talk of a liquidity crisis is well and truly over.

"Our lending space is bigger than pre-crunch," said Huw Zachariah, head of Hotels UK, HSBC, at a session that focused on lenders. "We're inundated with requests - it's a difficult task finding the best one."

Liquidity may be back - but the time taken to complete deals is longer than it has been in the past. Many of the large portfolio transactions seen in Europe in 2013 had been going on for well over a year by the time they closed.

"It is taking a lot longer," said Christof Winkelmann, managing director, special property finance, Aareal Bank. "It takes ten months to agree, and then another ten months."

Some European areas do remain off the market for traditional lenders. Though private equity is finding opportunities in distressed assets, Paul Dittmann, head of senior commercial mortgages, M&G Investments, expressed an interest in only the stronger European countries.

"The deals we are seeing are typically French, German and the UK," he said. "We don't lend at the moment to Italy, Portugal or Spain."

The situation there is unlikely to change going into 2014, but this doesn't appear to have affected the general optimism of the conference. There may be a clear realism that things are not quite as they were - but the European hotel market remains an extremely exciting place for investment and development. 2014 will be an interesting year.

The next Hotel Investment Conference Europe is on 17-18 September 2014 at the Jumeirah Carlton Tower, London.