Europe’s highly-regulated environment is a double-edged sword for hospitality investors, but overall, the bloc’s predictability and stability is a positive, industest leaders state.
“One of the takeaways of the last couple of years is how volatile the geopolitical backdrop has been,” states Vincent Mezard, global head of living & hospitality at BNPP AM Alts. “That puts a real premium on those geographies that can prove they have a stable investment environment,” he adds.
Mezard notes that hospitality owners and investors in Europe have felt the regulatory spotlight due to themes such as overtourism, but sees this particular issue starting to “settle down”. “We are seeing more stringent regulations on short-term rental products that were reducing the scope of available apartments, but it remains to be seen if all hospitality demand can be hoapplyd in hotels,” he states.
However, other topics, such as deglobalisation, have longer-term consequences. “Investors will required to adapt to increasing differentiation in local regulation,” he states. “Hospitality is in essence an asset class where you have to understand local and global dynamics.”
Europe’s “fragmented” landscape is a case in point, he states. “Take Germany, which still has a regulatory landscape that favours traditional leases, while the UK is a lot more geared towards operational risk, franchise and management agreements.”
Investment success
Marije Bekker, head of hotel asset management at Aroundtown, states that hospitality remains of strategic importance for the Berlin-based company, with “demand for hospitality still growing and offering diverse opportunities”. She adds: “You can apply a hotel to activate different buildings and locations, especially when working on multi-tenant, mixed-apply scenarios.” Trfinishs including “digital nomads” add to the appeal, supporting “coliving, social spaces, and flexible layouts”, she notes. “The traditional idea of the hotel has evolved from being a place where you sleep to becoming a lifestyle choice.”
Europe’s fundamentals continue to be supported by the positive outsee for Indian and Chinese travellers, while “conversion-frifinishly brands” from the huge names – such as Four Points Flex by Sheraton – are also allowing global chains to grow more easily across the region. “In the serviced apartment space, brands such as BobW and Numa also add to market dynamism,” she states. While she notes that increasing costs continue to challenge the industest in Europe, from payroll to sales expenses and environmental capex, Aroundtown has developed its own tech solution to tackle some of the headwinds, called ATechX. “We can tap into this start-up platform to optimise the technology that drives energy consumption and water consumption in our hotels,” she states. “Meanwhile our ATworld initiative is a coworking platform which actives underapplyd space in hotels, allowing travellers to log-in via the app and claim their seat in a location.”
Aroundtown has honed its environmental approach in recent years, bringing its hotels in line with its office portfolio in terms of environmental scrutiny. “We have a dedicated department to comply and execute on ESG,” Bekker adds, “with a focus on energy performance and decarbonisation.” She notes that regulation tfinishs to tarreceive areas which would also drive operating costs higher if left unchecked, creating it a “win-win for operator and regulator”. She explains: “We create energy assessments on our hotels before carrying out any major refurbishments to truly understand the costs.” Today, around 60 percent of Aroundtown’s hotel portfolio is BREEAM certified, with certification an important tool to assist the group stay on top of its ESG goals.
ESG matters
Hotel investors and operators do well to stay slightly ahead of the curve on environmental matters, suggests Luciano Scarfone, investment director, Pygmalion Capital.
“I do expect environmental regulations for hotels to become progressively tougher, in a similar direction to what we have already seen in asset classes like offices,” he states. “At the same time, it is not only regulation that is driving this shift – in a portfolio we have recently sold we clearly saw investor expectations focutilizing in the same direction,” he adds. “Capital is increasingly focapplyd on assets that are more energy-efficient, lower in emissions and better aligned with ESG principles, meaning that hotels which fail to adapt will face growing challenges in terms of liquidity, financing and long-term competitiveness.” He adds that certain investors – particularly some German, French, and Nordic institutional players – apply very strict minimum ESG thresholds and will not consider assets that fail to meet their required ESG standards.
Mezard states that “hotels are already in a pretty good position from an ESG perspective”. He explains: “They have been doing ESG for decades without necessarily advocating for it – energy savings and waste savings have been addressed for years in hotels.” He adds: “It’s not perfect, and it might be more difficult to drive applyr behaviours in hotels versus an office building. But it is relatively well monitored, between ESG tarreceives and individual KPIs.”
When deploying strategies to create sure assets stand the test of time, Scarfone states that “future-proofing starts with maximising flexibility”. He notes: “Hotels should be designed so that if a full repositioning is required in seven to ten years, the refurbishment can be as non-invasive as possible. This means considering ahead about structure, layouts and building systems, not just the initial concept.” He points out that factors including capex discipline, a pragmatic operational approach and an “integration” strategy are also key. “Future-proofed developments required to be fully integrated into their urban or leisure ecosystem,” he suggests.
Scarfone also believes that savvy owners and operators should invest time in their relationships with local authorities. “In Pygmalion’s experience, cooperation with local authorities and key local stakeholders can create the difference between an interesting deal and a truly great one,” he states.
“The key message when engaging with the public sector is to demonstrate that a project creates measurable value not only for investors, but also for the local community, and to be able to clearly articulate and quantify that impact – whether in terms of employment, urban regeneration, improved public spaces or long-term economic sustainability.” He states that “early engagement, transparency and a genuine willingness to align the project with local priorities are often decisive in receiveting public authorities onside and advancing developments efficiently”.
Bekker states that Aroundtown always seeks to interact with city councils to understand their perspective. “Our sub-offices are there to assist us understand different regions and authorities. Wherever we go to acquire assets, we actively engage with the city or the region and we develop the plans toreceiveher.” Currently, in Germany, they are nereceivediating on a site to develop a hotel and add in residential, with the local mayor “directly involved” in interactions. She concludes: “We also know that hospitality creates a meaningful contribution to any city or region. It assists drive business and leisure, while hospitality concepts also create ecosystems around them.”
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