A lesson in why not to overbuild: Limited supply gave European hotels a relative edge in holding their value last year compared to the U.S., despite stronger hotel performance in America.
Hoteliers and hotel workers in major cities across Europe continue to struggle amid another wave of lockdowns and rising coronavirus case counts. Occupancy rates in major European economies pale in comparison to those in the U.S.
But hotel valuations are another story.
European hotel values fell by as much as 15 percent last year, according to hotel consulting firm HVS. While a significant drop, the decline is less than in the U.S., where currently occupancy rates are much higher than in Europe but hotel valuations fell by as much as 30 percent.
“Everyone was waiting for something like a 30 percent drop in values to happen in Europe, but there’s been so much support from the government and lenders,” said Sophie Perret, senior director of HVS London. “That’s helped prevent the cash burn as much as possible.”
A combination of limited hotel supply pre-pandemic, high cost and approval barriers to enter and develop in certain markets, and more targeted aid packages to the hotel industry in places like Germany led to the more durable hotel valuations, Perret added. The U.S. did pump billions of dollars into the Paycheck Protection Program of small business loans, which some hotel owners could tap into.
But that program was a general fund for all small business, and many hotel owners and operators with larger properties didn’t qualify.
France rolled out a $19.4 billion aid package last year specifically targeting the tourism sector. Italy now offers tax credits for hotel building leases as well as renovations that took place during the ongoing low-demand period. Germany now allows larger hotel operators to tap into its Bridge Aid pandemic relief program of forgivable loans.
No End In Sight: The 15 percent drop in valuations is the strongest thing going for European hotels at the moment. Occupancy rates in Italy last week averaged just shy of 20 percent while the U.S. hovered below 60 percent. London occupancy rates hovered below 27 percent last week while Frankfurt hotels