Global investors eye under-pressure European real estate

The UK and Europe continue to attract significant cross-border investments, buoyed by changing economic conditions and an increase in interest from emerging markets. And this trend is set to continue. 

Speaking recently at the Pandox Hotel Market Day, Will Duffey, head of EMEA Hotels & Hospitality Capital Markets at JLL emphasised the significant role of cross-border investment in the European market, noting significant activity by players in North America, Asia and the Middle East. 

“EMEA is the largest beneficiary of inbound investments – about $120 billion since 2000, with the Middle East accounting for around 20 per cent of inbound investment into Europe.” 

European cross border investment picked up in 2023, in the wake of Europe already gaining $6.85 billion in capital market inflows in 2022, and earlier this year, Duffey noted that Asian and Middle Eastern investors were homing in on gateway markets in Europe, such as London and Paris. 

Private equity and sovereign wealth funds

Duffey’s comments were echoed by Blackstone CEO Steve Schwarzman’s remarks around the recent Global Investment Summit held in London, with Schwarzman noting the attractiveness of Europe as an investment destination due to the impact of rising interest rates on European real estate. 

Schwarzmann told Bloomberg: “We’re going through a big fundraising cycle and we have over $200 billion - one of the biggest pools of uninvested capital in the world – which will be deployed in due course. Interestingly, we’re seeing a good deal of volume of buying things in Europe because European real estate is under pressure.”

“This is in large part because interest rates were so low for so long so the borrowing costs to own real estate were next to nothing and now it’s closer to six per cent. So if you have to carry a whole portfolio, it used to cost you next to nothing but at six percent, they need to sell things because it’s necessary to hold their other properties. And so we’re seeing some very good buys in that kind of environment,” he added. 

And international private equity companies like Blackstone aren’t the only ones interested in the European hotel sector. Sovereign wealth funds have also gotten in on the action. In September, the  Abu Dhabi Investment Authority (ADIA) completed a deal to buy two hotel portfolios in Spain in a joint venture with Meliá Hotels International. PIF was linked with a putative deal for a stake in Rocco Forte Hotels, valuing the luxury hotels group at around €1.3 billion. Singapore’s GIC, the largest SWF in the world, bought a majority stake in the Mediterranean luxury resort-focused Sani / Ikos Group in September 2022. 

Emerging market interest 

And moving forward, Duffey anticipates an increase in outbound capital from India, driven by its burgeoning GDP and the creation of considerable wealth. 

“In due course, I think we’ll see a bit more capital coming out of India; GDP is nearly close to double digits and there’s a good sense that an awful lot of wealth is being created there. And I think we will see some capital start to move out of that. We’ve seen a little bit of activity to date; InterGlobe buying in Europe and Reliance buying in the US and in the UK,” Duffey said. 

He adds: “We’re also seeing some of that South American capital routing through Spain.” 

However, geopolitical unrest and macroeconomic volatility are factors that could influence future investment trends. Despite these uncertainties, Duffey remains optimistic due to the new capital and new regions coming into the sector.

Looking ahead, the trend of increasing cross-border investment is expected to continue and Europe remains a key focus, with cities like London, Paris, Zurich, Geneva, Milan, and Rome attracting attention.