BERLIN — The flow of hotel industry transactions in Europe has not increased since the start of the pandemic, and that has left hoteliers and investors grappling over asset valuations.

At the International Hotel Investment Forum's session titled “Post-Pandemic Deal Flow and Valuations,” Jane Lees, executive director at CBRE, asked how the industry is expected to compare values of hotels pre- and post-pandemic.

Panelists said there were some encouraging signs of life in the deals market.

“In the last three months, the deal flow is back to 2015 levels, which is very exciting. This has all happened in the last four to six weeks,” said Dominic Seely, director of acquisitions, Westmont Hospitality.

“Most of it is in the [United Kingdom], followed by Spain and Germany. There is not much in Eastern Europe, which is understandable,” he said.

Panelists noted the combination of high pricing and uncertainty makes this a difficult environment for buyers.

Sophie Perret, senior director at HVS, said pricing is pushing some to consider exiting.

“Momentum is present, but maybe some uncertainty is ahead of us?” she said.

Camil Yazbeck, senior vice president of development for northern Europe at Accor, said "demand has been super-strong with record levels of dry powder helping to maintain prices at pre-COVID levels. We are not seeing many distressed hotels. Owners are approaching private equity and debt funds and other sources of capital to recapitalize or add value to existing or new deals."

“There is a lot of dry powder, but everyone is looking for the same returns, so pricing remains the same. I’m telling my team to create the right deals and then go knocking on the doors of the right owners,” he said.

Yazbeck said creating the right value at an asset’s exit is now a particular challenge, as is adding to an asset post-pandemic consideration such as co-working, F&B that actually works and extended-stay elements.

He said these elements are of worth more now as most loyalty points are earned and churned domestically.

“Cap rates will compress if elements of co-working, office, residential and medical, among others, are brought into an asset,” he said.

Another major talking point at IHIF was the continued move to franchising in Europe.

Jon Colley, executive vice president of acquisitions and development at PPHE Hotel Group, said he is focused on growth but “not necessarily in leases, more on where we want to be."

“I struggle with pricing, the seller-buyer divide,” he said. “Deals are not vanilla.”

Seely said 75% of the deals on his desk are deals that did not close prior to the pandemic but are now.

Yazbeck added investors are focusing on the hotel sector as “offices [are] no longer considered the safest asset class. Investors are looking to diversify risk and unlock value through mixed-use projects with different elements.”

Perret said she is advising hoteliers not to get caught up in the new exuberance but to step back and look at “what properties will survive” and how to critically realize a product’s correct value.

Colley gave the example of PPHE’s Art’otel London Hoxton, due to open in 2024, as an asset the firm is looking at from every angle to de-risk its development and operations capital.

There is another consideration to valuations, Yazbeck said: the requirement to add environmental, social and governance criteria to properties that will ensure exits fulfill a seller’s criteria.

“Success is not only measured by rooms growth whilst leaving it to someone else to save our way of life and our planet," he said. "True success has been redefined beyond signings growth and the bottom line. We need to equally focus on our day-to-day investment decisions and on the small actions each of us continuously choose to do that will positively impact our people and our planet — this is what will truly drive sustainable profits.”

He said Accor put a 700-million euro ($738.6 million) bond issue linked to ESG key performance indicators in place in 2021, which was the first of its kind for the firm. The goal, shared by other firms, is to be 46% carbon neutral by 2030 and fully so by 2050.

The hotel firm currently has a record pipeline in Europe of 431 hotels and approximately 59,000 rooms, 27% of the global pipeline, with 264 hotels and approximately 41,500 rooms of that number being in Northern Europe.

All these points, panelists said, also are being affected by post-pandemic concerns of rising inflation, a squeeze on discernible income and increasing energy prices.

“There is likely to be a recession by the end of the year. … Occupancy levels are not sustainable,” Colley said

Perret wondered where average daily rate is going to settle, while Seely wondered how long banks will be accommodating in its lending criteria.

“Performance at the moment is coming out of consumers’ savings,” Colley added.

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