Hotels

At around €250 million, the volume in the investment market for hotel real estate was disappointing in 2023. This represents a reduction of around 40% compared to 2022. The main reasons? The rise in financing rates and the decline in the value of hotel properties, at around 10% to 15% since 2019. But many investors also feel that the risks involved in investing in hotels have grown. This perception came about during the corona crisis, when tourism fell to unprecedented levels. This negative sentiment is likely to diminish in the wake of falling interest rates, which will encourage investors to buy again. Pegging the volume at €500 million, we expect the hotel investment market to recover in 2024.

Trends and developments

• Buyers and sellers of hotel real estate that are subject to permanent leases seem to disagree about the value of the assets. Buyers are giving lower valuations to properties, due to the deteriorating market sentiment and the increase in the perceived level of risk. In contrast, sellers are sticking to their higher valuations in anticipation of a speedy market recovery and based on the strong returns from hotel operations in 2023. This is producing an impasse in the hotel investment market at the moment.
• Several investors bought when the market peaked in 2017, 2018 and 2019, but they are now wanting to move back towards an exit. Given the decrease in value of hotel real estate, this entails selling at a loss. Now that there is an upturn in hotel exploitation, some investors are opting to hold on to profitable assets instead of selling them.
• Last year, the Netherlands reached record numbers of tourist bed night occupancies. The prospects are also positive for the coming years at around 10% more overnight tourist stays until 2025. This drove up room rates and the returns per available rooms (RevPAR), which saw a strong recovery of hotel turnover in 2023. This trend is expected to continue in the coming years.
• The costs for hoteliers have risen, mainly on account of increases in wages, energy prices and more expensive procurement. Thanks to the strong recovery of tourism, hotels have so far managed to compensate for this by raising the room rates. However, there has been slowing down in the rise of labour costs, so keeping spending under control is still a challenge.
• A growing number of municipalities, like Amsterdam, Utrecht, The Hague, Maastricht and Harlem, are attempting to curb the development of new hotels through regulations. This is ultimately expected to have a positive impact on the operating results of existing hotels, due to the increasing demand for overnight stays.

Analysis of hotels

In terms of operations, the hotel sector in the Netherlands is healthy, with higher room rates offsetting the rise in costs. But there is a catch: the cost of living for consumers has risen sharply, so there is a limit to how high room rates can be raised. At the same time, wage costs will continue to rise substantially in 2024, despite the fact that inflation is expected to normalise. Good cost management is therefore essential if operational profit margins are to be kept stable. As far as the bottom line is concerned, the outlook for many hotels is positive, especially if costs stabilise in the coming years. This may shake up hotel investors in 2024, which will have a positive impact on the investment dynamics in the sector.