Middle East investors target European hospitality

Middle East investors are targeting hotel investments in Europe with renewed vigour, according to Patrick Saade, senior managing director of JLL’s EMEA hotels and hospitality division.

“Middle East investors have always liked Europe and understand that now is the time to act as an interesting set of conditions collide,” Saade says. 

“First of all, there are the evergreen fundamentals. Europe is five to six hours from their base, which they see  as an extension of where they are; versus the US which is much further away so investing there requires setting up a local office. Importantly, European city centres don’t move. If you buy an asset in downtown Paris or Amsterdam it remains prime real estate; in the US, urban centres often shift. There is also a comfort level with doing business here, as during Covid, for example, the continent remained hospitable, and also feels safe from a finance and banking perspective.”

Patrick Saade

Yet there are also some time-sensitive aspects that are accelerating action, he notes.  “A lot of US capital has retreated to the US, in the light of macroeconomic events back home. That makes the US a tougher market for international investors to play in, while there is less competition in Europe. A more expensive debt climate means equity-rich Middle East investors can strike better deals, particularly in the €100 million and above space. Lastly, the product that is coming to the market right now includes trophy assets which Middle East investors like. If you’re a cash buyer, these are still very interesting prospects, whereas for a traditional levered investor, debt might barely be accretive.”

When they do turn to debt, Saade notes that they often have “relationships with banks in the Middle East that will follow them to Europe, or use those terms to arbitrate with local banks. That gives them an additional competitive edge.”

The way Middle East capital approach the European hotel market is varied, according to Saade, who sees a range of risk appetites. “Some like to buy established assets on a relatively good basis. Others are choosing repositioning potential. And some would like to take more risk and go into repositioning.” Saade notes that while relatively few are pure play developers, there is a significant trend of developments from structured capital specialists in the institutional space, namely sovereign wealth funds.

Jumeirah's expansion

While a well-known brand in place is a draw for some, a defined group of investors are happy to plant their own flags. One firm of note in this area is Jumeirah Group, a luxury hospitality company in an active expansion phase which forms part of global investment firm Dubai Holding. 

In February, Jumeirah announced the acquisition of its first property in Switzerland, Le Richemond, a historic property situated on the banks of Lake Geneva. Founded in 1875, the art deco property features 109 keys with 87 rooms and 22 suites, and views across Lac Léman and the peaks of Mont Blanc. The property is now undergoing extensive renovations to bring the rooms up to the group’s standard, and Jumeirah also plans to introduce its own wellness and fitness concepts, plus destination dining options.

Says Katerina Giannouka, CEO of Jumeirah Group: “This is an important acquisition for Jumeirah as it marks our entry into Switzerland. As the gateway to the mountains of Europe, Geneva is strategically significant for us as we look to diversify our portfolio in major cities with both summer and winter resort destinations.”

The property in Geneva is Jumeirah’s fifth in Europe, joining The Carlton Tower Jumeirah and Jumeirah Lowndes Hotel in London, UK; Capri Palace Jumeirah on the island of Capri, Italy; and Jumeirah Port Soller Hotel & Spa in Mallorca, Spain. The Dubai-based group now has a portfolio of 26 hotels and resorts across Europe, the Middle East and Asia, as it pursues global growth.

Maybourne growth

The Maybourne Hotel Group is another Middle Eastern business which is expanding in Europe. Owned by Coroin, whose parent company is Doha-based Constellation Hotels Holding, Maybourne conspicuously set its sights on European expansion at the height of the pandemic, doubling down on the completion of a new build property on the French Riviera, the ambitious and modernist Maybourne Riviera, which opened in summer 2021. The group is currently working on The Emory in London, another modern structure which will mark its sixth hotel, following the Côte d'Azur launch and the opening of the Maybourne Beverley Hills. Designed by architectural firm RSHP, the Knightsbridge property will be ready by winter 2023, joining a prestigious London slate owned by the group that includes Claridge’s, The Connaught and The Berkeley.

Notes Saade: “Of all the asset classes, hospitality has always been the darling for many Middle East investors, and that is even more true today. The leisure spending narrative is very interesting. What we thought was ‘revenge’ spending is turning out to be rather more sustainable. Furthermore, it looks like gains made during periods of inflation are not being lost. For the first time in my fifteen-year experience in the sector, we are seeing cases where yields for hotels are practically keener than yields for offices, on the back of strong fundamentals.”

While Saade points to the return of US tourists to Europe in summer 2022, he thinks that 2023 will bring a further wave of travellers from Asia. “We’re not quite back to 2019 visitor figures but hoteliers are also much more sophisticated than there were even eight to ten years ago, and understand  how to manage room rates better. During the Global Financial Crisis, they put down their rates which didn’t really stimulate demand, so they are keeping prices steady this time around.”

Meanwhile, he applauds a healthy and varied market in Europe for attracting both international investors and end-users. “Kudos to Ennismore, Accor, Marriott and others for creating new brands. Established names haven’t been sitting idle, either, launching concepts that really resonate with their customers.”

Finally, European destinations seeking to attract high-spending tourism could do worse than look east for lessons in shaping visitor metrics. “While Dubai and Saudi are welcoming a broad class of visitors, visitor numbers have drastically slowed in Qatar post World Cup, but this is part of a deliberate attempt to be selective on tourism. It’s a rich country and they are prepared to wait for what they want.”