Hotel groups are expected to undergo consolidation this year as they seek to grow their business or risk being taken over themselves.
With improved trading conditions and hotel values expected to rise throughout Europe over the next few years, now is a good time to develop, acquire or invest in hotels, according to Russell Kett, chairman of global consultancy HVS London.
"Organic growth is a relatively slow way to expand, so hotel companies will be looking for opportunities to make quantum leaps, typically by buying other hotel companies and driving more value through economies of scale," he said. "Global hotel companies either have to acquire to maintain their growth strategy, or be prepared to be someone else's target for acquisition."
London is a key city for prime investment opportunities, alongside Paris, Rome, Amsterdam, Barcelona, Hamburg, and Munich, while Kett suggests that cities to be avoided for new hotel development include Athens, Budapest, Kiev, Vienna and Warsaw.
However, a lack of available hotels on the market means that hotel transaction volumes are currently well below the levels experienced in 2005-07.
"We are seeing a number of new investors in the sector including insurance companies and hedge funds, which together with sovereign wealth funds, high net worth individuals and private equity firms ensure there is keen interest," explained Kett. "Indeed, it is likely that the major hotel transactions this year will be dominated by private equity buyers.
"Lack of availability as well as improved demand and profitability should mean that hotel values continue to rise for the foreseeable future."