HVS and HVI Methodology

HVS, the world’s leading hospitality consulting and valuation firm, is pleased to deliver the 2021 Hotel Valuation Index (HVI). The HVI is a hotel valuation benchmark developed by HVS. It monitors annual percentage changes in the values of typically four-star and five-star hotels in 33 major European cities. Additionally, our index allows us to rank each market relative to a European average. All data presented are in euro, unless otherwise stated.

The methodology employed in producing the HVI is based upon actual operating data from a representative sample of four-star and five-star hotels. Operating data from STR were used to supplement our sample of hotels in some of the markets. Projections for a typical 200-room hotel in each city are produced, and appropriate valuation parameters are applied to the EBITD after FF&E Reserve, using our experience of real-life hotel financing structures gained from valuing hundreds of hotels each year. We have also taken into account evidence of actual hotel transactions expectations of investors with regards to future changes in supply, market performance and return requirements.

Highlights

• Lockdown measures imposed across Europe from March 2020 led to hotels widely closing across all markets – the result was a RevPAR decline of around 70% for Europe, the most severe globally;
• The impact on cash flows and profits has been dramatic, although government support and payroll subsidies helped to soften the blow. Lenders widely agreed to waiving covenant and payment defaults for several months, with well-capitalised banks and reasonable loan-to-value levels allowing for this. Furthermore, operators waived brand standards (some of which might never return) and relaxed owners’ access to reserve funds;
• Specific sectors that found some (relative) upside from the pandemic were resorts and drive-to leisure destinations, which benefitted from staycations and less crowded offerings, and extended stay products, thanks to the ‘controlled environment’ nature of their facilities;
• Most hotel managers have used this crisis as a ‘blank canvas opportunity’ to rethink their cost structures (think agile workforce, consolidated functions) and speed up the adoption of various technology tools. This has resulted in lower break-even occupancy levels.

Going Forward

A number of trigger points will be needed for tourism to normalise, including the reopening of borders, the return of air routes and business travellers (whether individual or in groups) travelling again. Once the vaccination rollout has reached its objective of herd immunity, the hospitality industry will be well placed to capitalise on the return of demand. In the meantime, ‘green passports’ will help certain countries to welcome vaccinated visitors more readily.

Hotels with weak business propositions will have to be repurposed or reinvented as something else. Meanwhile, very strong investor interest and weight of capital continue to chase assets with good potential and in strong locations, driving demand for deals that are realistically priced and limit the degree of price discounting. This abundance of liquidity and competition is therefore resulting in an overall very different picture from that which followed the global financial crisis. This is the time to invest in hotels.

Charles RG Human, MRICS Chairman - London [email protected] +44 (20) 78 78 77 71