Search for the silver lining

10 October 2022

The past few years are surely ones that hoteliers would like to forget – and they’re not the only ones. For if the front end of hospitality has suffered greatly in the wake of the pandemic, investors have too. Andrea Valentino talks to Russell Kett, chairman at consultancy HVS, to understand how Covid has impacted sales and acquisitions of properties, how changing customer habits could alter what investors are looking for, and how ESG and new interest in resorts could shift the typical profile of transactions.

It would be an understatement to say that the past few years have been a challenge for global hospitality. Perhaps understandably for an industry centred explicitly around guests, that misery has largely focused on questions like room occupancy. We all know by now that eight in ten US hotel rooms remained empty over the course of 2020, according to AHLA. We know, too, from a report by Statista, that across Europe revenue by room collapsed by 95% within a month of global lockdowns starting. Not that these catastrophic numbers can merely be filed away as history. Though the sector is gradually improving, experts suggest that occupancy rates will only approach pre-pandemic figures at some point this year. It goes without saying that China, with its zero-Covid policy, won’t hope to reach that modest milestone for a while yet.

Yet, if hotel executives and outside analysts obsess over questions like RevPAR, they risk neglecting an equally monumental trend: transaction volume. For if guests were battered by the pandemic, investors were too – sales of both single hotels and portfolios plummeted just as dramatically as individual bookings. Nor is the pandemic the only bump on the road to recovery. With the future of the global economy distinctly wobbly, the market for hotels continues to be unclear. Even so, the situation is far from hopeless. Just as other areas of hospitality have recovered from the worst of the pandemic, transaction volume will too, buoyed among other things by a resurgence of in-person events and the possibility for distressed deals as Covid-era support comes to an end. Yet, just as elsewhere in the world of hospitality, challenges will remain. Quite apart from the grim geopolitical forecast, after all, investors may struggle to adapt to a world where customer demands are changing and where ESG is arguably becoming more potent. Knock past these obstacles, however, and buyers could still be in for a treat – with serious consequences for hospitality as a whole.

Holding patterns

Few experts are as well placed to explore the current state of hotel transaction volume as Russell Kett. Joining HVS way back in 1995, the next year he became one of the company’s managing directors. As HVS’s chairman since 2012, Kett is a 40-year veteran of the hospitality industry, boasting experience everywhere from investment and strategy through to asset management and valuation. To put it another way, what Kett has to say is worth listening to – and his basic takeaway is that business is still far from normal. Global transactions “clearly not” back to the situation pre-Covid, he says, adding that he only expects the market to return to 2019 levels by 2024.

Certainly, the statistics seem to support these basic reflections. Transactional activity, to give one example, was slashed to around €8.6bn across Europe in 2020. Put another way, that was just a third of the figures seen in 2019. To be fair, the market did rebound strongly in 2021, doubling compared with the dreadful year before, while transactions impacted around 613 assets, altogether encompassing 72,000 rooms. Yet, as Kett explains, these broadly impressive figures belie a latent weakness in the market as a whole. “There isn’t that much actually actively being sold,” he stresses. “What makes a transaction is a willing buyer and a willing seller – and you can’t get a transaction unless you’ve got a combination of both. So a lot of people, I suspect, are thinking ‘well maybe I’ll try and hold out for a little longer’.”

That last statement, at least, begins to explain the sluggishness of the transaction market even as the pandemic is fading. Another reason might well be the way that some hotels have been able to survive the storm thanks to outside help. As recently as January 2022, for instance, the French government offered eligible hotels the equivalent to 20% of their staff wage bill. Across the Channel, its counterpart in London made up to £10m available to businesses. Of course, that aid is now coming to an end. As Kett puts it: “We could see some distressed disposals of hotels that were largely saved by what I’ll call Covid-related support.” Until then, however, the situation remains unclear.

“What makes a transaction is a willing buyer and a willing seller – and you can’t get a transaction unless you’ve got a combination of both. So a lot of people, I suspect, are thinking ‘well maybe I’ll try and hold out for a little longer’.”


The percentage that revenue by hotel room collapsed by within a month of global lockdowns starting.


None of this to say that there haven’t been particular bright spots over the past 12 months. To a large extent, these are the places you’d expect, with Kett highlighting Spain as a country that’s seen “quite a lot of volume”. This is clearly reflected in the statistics. According to work by HVS, for example, Spain enjoyed a higher transaction volume in 2021 than the previous two years combined – representing a more than doubling than 2019 levels. That’s shadowed, continues Kett, by the UK, another longtime stalwart. London, for its part, enjoyed the highest investment volume of any city in Europe. As HVS notes, a number of recent deals enjoyed particular attention, including the 646-room Park Plaza Riverbank Hotel, sold for a reported €306m.

New assets

In the midst of this uncertain investment environment, the market is having to face a new set of challenges.


The year Russell Kett expects global transactions to return to pre-pandemic levels.



The amount raised by ActivumSG, a Berlin investment fund, to target distressed real estate across Europe.


That begins, Kett suggests, with inflation. It could, he argues, have a major impact on hotels. That’s true both from an operational perspective – soaring prices potentially mean fewer guests – and in terms of the investment market. For if the ending of Covid support schemes could yet force some hoteliers to sell, Kett argues that inflation could ultimately prod them in a similar direction. “Now that they’ve got inflationary pressures mounting – and perhaps those aren’t as well managed as they might be – I think we might see some distress dispositions with some of these hotels.”

There are certainly signs that this is already happening. In the US, the Atlanta-based Peachtree Hotel Group has acquired over $1bn in distressed assets since June 2020. It’s a similar story on the other side of the pond too: ActivumSG, a Berlin investment fund, has raised €550m to target distressed real estate across Europe. That comes in the wake of other moves, including the 2020 acquisition of the Dutch-based Odyssey Hotel Group and Nobu Hotel Barcelona.

Yet, if the rise of distressed sales would mark a change from recent years, Kett is similarly keen to emphasise that some trends look set to remain the same. In particular, he believes that traditional hotspots like London, Barcelona and Madrid are likely to remain popular, a situation that could in fact be self-sustaining. “Somebody does a deal and all of a sudden a particular location gets prominence,” is how he puts it. “But I would have thought nothing new is going to emerge.” The same is true, he adds, of established business centres like Frankfurt.

Not that investors or managers can necessarily expect everything to return to the pre-2019 model in the months and years ahead. While Kett says that “people are social animals” – meaning the corporate sector will revive sooner or later, as people are excited for in-person conferences and the socialising that goes with it – he nonetheless argues that the “profile of hotel demand” is bound to change. To explain what he means, Kett uses the word ‘bleisure’. A portmanteau of ‘business’ and ‘leisure’, he notes that corporate travellers increasingly want to blend hard-nosed meetings and more relaxed pursuits too. That, it goes without saying, will force investors to think more carefully before signing.

Going green?

Another area of shift flux may well be ESG. Long a watchword across hotel investing, Kett notes that he’s “heard a lot” about its rising importance in investment circles. Among other things, he says there’s been talk about framing hotel management agreements with sustainability in mind. Not that any of this is a done deal just yet. “The brands or the operators might be happy to see more in there – providing the owner is going to bear the financial cost,” is how Kett frames it, adding that the ultimate concern for everyone in the sector is to ensure that a hotel can be run profitably, especially given the past, traumatic few years.

One further change Kett considers worth mentioning is the move towards investments in resorts, especially in places like the Mediterranean. Apart from giving eager buyers more markets to invest in, he suggests it could presage a broader change in the sorts of deals being done. This is fundamentally a question of scale. Major hotel groups – your Radissons or Hiltons – tend to operate in urban areas. But resorts are often smaller-scale affairs, implying that some larger portfolio deals may fall by the wayside. The point, at any rate, is that opportunities are undoubtedly there for investors bold enough to find them – surely welcome news given the struggles the industry has faced of late.

Russell Kett (pictured) is a 40-year veteran of the hospitality industry.
The main concern for everyone in the investment sector is ensuring that a hotel still attracts enough guests.

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