Featured Post

Sunday, July 11, 2021

European Luxury Investors Seek Out Open Spaces and Affordable Places

 My most recent piece, which appeared in Hospitality Insights in June. Given that the publication is based in England, British English is used throughout. 

The pandemic may have slowed investment in the European luxury hospitality sector for a spell, but most experts say the market is coming back quickly, albeit in areas with a few key set of characteristics.

By following the money, it’s evident that luxury investors have been showing interest in places that meet the new Covid-era demand for wide-open spaces in natural settings. On the other hand, they are also looking at risk-proofing investments by opting for areas that can have strong appeal to the intra-European luxury market. Right now, leisure destinations that typically attract the long-haul high-end crowd are not so attractive, nor are cities that receive a large share of their hotel nights from convention-goers. 

One&Only's property in Montenegro

Another factor that is driving this push toward investment in high-end leisure actually precedes the pandemic: With the spectre of overtourism hovering, countries including The Netherlands, Spain and Greece had already started shifting focus away from the mass market to “high-quality, high-spend” tourism. “We are moving from a model of ‘the more tourists, the better’ to one of higher expenditures, more nights and premium tourists,” Reyes Maroto, Spain’s tourism minister, recently told the Financial Times.

Post-Covid, it may be easier for EU member countries to move further in this direction, spurred by resources from the organization’s massive €750 billion coronavirus recovery fund. Several countries have announced plans to use the money to modernise tourism infrastructure and otherwise improve destinations in ways that will attract high-end travelers. 

That demand for this market segment is growing is partly confirmed by what is happening in Accor’s development pipeline. According to Davinia Cisier, Accor’s Director Development Luxury Europe, “Over the last five years, Accor has transformed its brand portfolio, moving from 16 brands to 40 with a concentration on high-value segments.” Forty percent of Accor’s current global development pipeline is made up of projects in the ultra-luxury, luxury, premium and collection brands.  

high-end tourism hotspots

The Money Trail

Taking a look at a map of continental Europe, analysts are seeing some notable trends. According to Cushman & Wakefield, a commercial real estate brokerage firm, one-third of transaction volume in 2020 were outside urban locations. However, when focusing solely on deals committed after the virus outbreak, the share of non-urban locations increased to more than 41 percent. According to the company’s analysts, this implies an investor expectation of better long-term prospects for non-urban hotels driven by leisure demand.

The map also shows investment taking place in the mountains. “Nature tourism has boomed during the past year, and more Europeans are getting into the habit of seeing traditional ski areas like Courchevel and Zermatt as four-season destinations,” according to Alex Sogno, the CEO of Global Assets Solutions. Employing ski areas as year-round destinations is likely to become a long-term shift in Europe, the prospects of which have great appeal to investors and developers alike.

Zermatt, Switzerland is one of the European mountain regions
of interest to luxury hospitality developers

Accor’s Cisier also sees growth in mountain destinations, along with traditional resort areas, including Baden-Baden and Ticino. Additionally, she notes that the Balkans region is a prime target for luxury projects, due to factors like, relatively, inexpensive development costs, increased airlift and diverse natural assets. 

Greece is leading the way. Notable recent transactions agreed to after the start of the pandemic, according to Cushman & Wakefield, include a resort portfolio comprising 1,094-rooms across five seafront hotels on Crete and the 990-room Porto Carras resort on the Halkidiki central peninsula.

Also being further developed is Costa Navarino, located in Messinia in the southwest Peloponnese.  Already home to two five-star deluxe hotels, the developers are looking to add a high-end hotel, villas and a new golf course. And One&Only is bullish on the Balkans, opening its Kéa Island property in Greece this year and another resort on the Athenian Riviera next year. 

The Kerzner International company also opened an outpost in Montenegro in 2021. In recent years, Montenegro has benefited from its Adriatic coastline and the UNESCO-listed Bay of Kotor; an emphasis on facilitating investments and offering significant tax exemptions to overseas investors; and a focus on attracting high-end tourism and the yachting community. 

Over to Iberia

Portugal shares many of the investment advantages of the Balkans, including cheap land, transportation access, diverse natural assets and mild weather. In recent years, according to Nuno Miguel Alves, director of investment at Turismo de Portugal, the bulk of the luxury development in that country had been taking place near Lisbon, thanks in large part to the significant upswing in both American and Brazilian luxury travelers since 2016. But during the past year, Alves notes, luxury developers have been eyeing rural areas and coastal areas near Porto, three hours north of Lisbon, and Comporta, located about one hour south of the city. As a tourism destination, Portugal is also looking to broaden the market in Algarve, relying less on the mass market and more on the affluent. This strategy will help attract more visitors to the resort destination during the off-season.
“Our advantage to investors is that Portugal, while in the EU, is more affordable than other countries in Europe. Plus, there has been a growth in overseas airlift (albeit halted by the pandemic) to Lisbon and Porto. In the long term, there is a lot of potential to grow,” he said. 

“Even during this trying time, the desire to invest in luxury hospitality in Portugal didn’t go away. And in the last six months, investors have been willing to take action.” That said, so far, according to Alves, most of the new investments have been distressed assets, and, no surprise, nature resort developments.