Luxury drives investments in line with decade average

For much of the past year, economic uncertainty and high financing costs influenced operators into making long-term decisions, but in the last quarter, Italy woke up.

 

2022 levels reached

According to the EY Italy Hotel Investment Report 2023, hotel investments in Italy in 2023 are in line with 2022: €1.6 billion and approximately 10,000 rooms sold. Although the volume is lower than the record-breaking year 2019, which also featured the sale of trophy assets and large portfolios, the level of investment aligns with the decade’s average.

Most of the year was characterised by a slowdown in transactional activity, primarily due to uncertainty over rising interest rates, slow economic growth and high financing costs. However, the last quarter saw an increase in transactions (58% of the total volume) with the sale of two trophy assets and several medium-sized hotels.

 

Secondary and tourist destinations

The EY research also highlights a significant increase in transactions of small assets in secondary and regional destinations, mainly due to the resurgence of auctions.

2023 confirms the growing interest of investors in tourist destinations considered to be resilient and that offer higher rates of return (45% of the total volume). Among the most significant resort transactions are the Pellicano Hotels portfolio, Il Sereno on Lake Como and the Grand Hotel Gardone on the shores of Lake Garda.

Interest is focused on value-added investments (46% of transactions) involving both conversion and rebranding of existing hotels, especially in leisure destinations. However, 2023 also marked the resurgence of core investments (42% of the total volume), fueled by major operations such as Six Senses in Rome and Il Sereno on Lake Como.

 

The big cities

Due to the limited number of operations, the big 4 represented only 38% of total investments. Rome confirms its lead for the second consecutive year, recording sales of €412 million (25%), followed by Milan (8%), Florence (3%) and Venice (2%).

Secondary and regional cities increased their appeal for investors, accounting for 16% of the total volume. Tourist destinations recorded the largest share (46%), thanks to the sale of prime assets in key locations such as Lake Como (Il Sereno), Garda (Grand Hotel Gardone), Sardinia (Free Beach Resort) and the Tuscan Riviera (Vacanze di Charme portfolio and Hotel Paradiso al Mare).

 

The luxury engine

Thanks to larger operations and the predominance of trophy assets, the 5-star sector continues to fuel investment volume (43%) despite representing only 7% of rooms.

4-star hotels recorded almost the same volume as the higher category, but operations involved over 6,000 rooms in 60 transactions.

 

National takes over

Thanks to the purchase of Six Senses by the Statuto group, national investors have surpassed international ones for the first time since 2016.

In 2023, 46% of transactions involved international buyers, mainly Europeans (France and UK), while non-Europeans accounted for 23% of the total volume.

Considering significant transactions involving at least one international figure (buyer or seller), net capital flows into the Italian hotel market are consistently positive in the long term.

 

The investor profile

Except for developers, the investor profile shows a consistent distribution among various classes, with a slight prevalence of high-net-worth individuals/family offices (32%), followed by hotel operators (29%) and private equity (19%).

National buyers were mainly family offices and operators, with Europeans evenly distributed amongst operators, private equity funds and institutional investors. Buyers from the United States and Canada were mainly private equity, and MENA buyers were mostly institutional.

Compared to the previous year, 2023 was characterised by the predominance of HNWI/family offices and operators with core investments and direct acquisitions, while private equity firms experienced a slowdown due to rising capital costs.

 

Cautious optimism for 2024

The hotel sector has demonstrated a high recovery capacity, with RevPAR surpassing 2019 levels by 41%. The recovery of urban hotels has been remarkable, driven by border reopenings, business travel and MICE.

Overall prospects are cautiously optimistic, with modest and steady growth expected for 2024.

Interest from financiers is slightly increasing, accompanied by modest improvements in interest rates and debt coverage ratios. However, uncertainty remains about the timing and pace of future rate cuts, as well as broader concerns related to international conflicts. Therefore, the market is expected to be cautious in the first half of the year.

Major international investors remain interested in Italy, primarily focusing on value-added opportunities associated with trophy assets, promising higher returns. According to the EY Italy Hotel Investment Report 2023, the domestic market will continue to be dominated by operations in the upper, upscale and luxury markets, particularly in primary urban markets and leisure destinations. Moreover, the end of “standstills” is expected to lead to an increase in auction sales.

The outlook suggests that investors will continue to seek opportunities in top tourist destinations such as Cortina, the Italian lakes, Sardinia and Tuscany, and there will be interest in alternative forms of hospitality such as serviced apartments, branded residences, as well as open-air accommodation facilities.

Real Estate Sentiment Index and RevPAR both positive

A new year of inevitable transformations, from investment to changes in consumption patterns and the advent of technology that help meet the increasingly complex needs of clients and operations, from personnel recruitment to ESG. “The sentiment index for the first quarter of 2024 among Italian and international operators and investors is positive, thanks to excellent operational results from individual hotels and hotel groups,” says Giorgio Bianchi, partner and business development manager at Hospitality Project Investment. “This is also confirmed by recent data based on a solid pipeline and new openings in the Big 4 cities of Rome, Milan, Florence and Venice, as well as in alternative locations, particularly Naples, Bari, Turin and Bologna.”

Attractive resorts

“The main focus,” he continues, “is on the luxury, lifestyle, boutique and hybrid hotel sectors, and according to projections, the best  investment opportunities in the next 3-5 years will involve resorts, with particular attention on Tuscany, Sardinia and Puglia. There is also significant and continued interest from operators, including international ones, in mountain destinations, as evidenced by analyses of the most exclusive Italian locations such as Cortina, Courmayeur and Madonna di Campiglio. Also under the spotlight are some destinations in Lombardy – Livigno, Bormio and Ponte di Legno in particular – driven by the effect of the 2026 Winter Olympics.”

“High levels of passenger traffic at Italian airports in Rome and Milan is driving the expansion of hospitality offerings,” adds Bianchi. “In particular, a new hotel with a significant international brand is planned for Bergamo, which grew by over 15% in 2023 compared to 2019.”

evPAR soars

The growing interest in hotel properties in our country corresponds to an increase in the profitability of management companies. Andrea Delfini, president and CEO of Blastness, says “Analysing a panel of over 200 accommodation facilities from various categories in Italy, to which we have been providing our automated PMS reporting systems for over 5 consecutive years, we noticed a 38% increase in RevPAR in 2023 compared to 2019, alongside a 47% growth in ADR and a 5% decrease in occupancy. Also, compared to 2022, RevPAR over the last 12 months has grown by 18% due to a 15% increase in average revenue and a 2% increase in occupancy.”

The main Italian cities

“From the analysis of RevPAR in the main Italian cities,” he continues, “we recorded a 42% increase in 2023 (+47% ADR, -5% occupancy) compared to 2019 and a 26% increase compared to the previous 12 months (+21% ADR, +3% occupancy). 5-star hotels distributed throughout the country, including seasonal structures, are growing at an even faster rate, reaching +50% (+56% ADR, -3% occupancy) compared to 2019 and +7% compared to 2022 (+10% ADR, -2% occupancy).” According to Blastness, it emerges that regarding the main Italian cities, most of the growth compared to the pre-pandemic period has been recorded in the last year, while at a national level the biggest growth in the luxury sector has been recorded since the summer of 2022, driven by a significant increase in average prices of seasonal structures.

Paola Olivari

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