Hotel Investments in Austria 2021

Factors affecting hotel investment market in 2021

According to the CBRE experts, the total investment volume in the European hotel market dropped to EUR 6.6B in 2020, which is a decrease of 75% compared to 2019. The situation in the Austrian hotel market corresponds to the European market.

Apart from the above-mentioned transactions at the end of 2020, the rest of the hotel investment activity was practically brought to a standstill.

It is worth noting that Austria launched an initiative to support hotel income during the market recovery. It includes a temporary reduction in hospitality VAT rates, which were decreased by 50%. Therefore, a high number of potential insolvencies of multiple operators have been prevented by state-funded aid programmes. The Austrian economy is expected to return to the pre-pandemic level by 2024 at the earliest, and as stated by Owen Pritchard, executive director and COO of EMEA Hotels at CBRE, the hotel investment in Europe will start picking up again in H2 2021.

Debt Availability and Bid-Ask Gap

Debt availability in the face of ongoing operational headwinds remains an entry barrier for many investors interested in Austria. However, a significant weight of capital continues to be raised by well-capitalized private equity firms, spanning across both new and existing players in the market. This follows an expectation of discounting across the market, coupled with confidence in the longer-term prospects of Austrian travel.

In Austria, one of the issues affecting hotel investments is a bid-ask gap. Due to a significant imbalance in the pricing expectations between sellers and buyers, transactions are not completed on time. This gap is being caused by bidder-side competition (owed to the weight of capital hovering over the market), a relative scarcity of prime assets available as well as mounting debt obligations likely to result in downward pressure on pricing from the owner side. This is expected to open further transaction opportunities as we move towards the second half of 2021.

Upcoming trends for hoteliers

After a challenging 2020, there will be multiple opportunities in the near future for hoteliers that know what to look out for. We have reviewed the essential trends that hotel players will need to pay attention to in order to make the most of these opportunities.

A number of hotel projects in Austria have been suspended and postponed due to the temporary withdrawal of potential investors. Therefore, some hotel operators took the decision of converting the original hotel development plans into serviced apartments, residential projects and offices. These measures have proven to be efficient and crisis-resistant, which is why many struggling developers of projects under construction and operating hotels are currently considering the same strategy. Of course, many factors have to be considered before taking this step. These include the location of the development, the intended implementation concept and the associated zoning category.

Technology

The pandemic has accelerated the adoption of digital technologies that enable guests to check-in and check out, control the guest room technology or request services through their phones. An increased reliance on improved technological tools can help support a reduction in staffing and service costs.

ESG

The adoption of a sensible environment, social and governance strategies (resource scarcity, data security, talent management, etc.) are increasingly considered essential to stakeholders, such as lenders and governments demanding owners to publish energy-in-use data. ESG issues are becoming a major risk to investors, making companies track, account and disclose them, which affects every financial transaction, which means hotel industry players will have to be prepared for this situation.

Cross-Border Traveling

In May 2021, The European Commission introduced the Digital Green Certificate system, which is in the form of a Covid-passport, for twelve countries including Austria. The European Parliament has marked July 1 as the date upon which the certificate will need to be made available for travelers’ to use in all member countries. This measure will significantly facilitate the movement between EU states.

Expectations for hotel investment market in Austria

According to Christie & Co, the hotel sector has undoubtedly suffered a significant setback and was hit the hardest out of all the economy assets in Austria. Nevertheless, tourism is one of the leading economic drivers in Austria, and once the pandemic slows down, people will start traveling again. Simon Kronberger, Director Austria & CEE at Christie & Co, expects multiple transactions in the near future from which the entire hotel investment market will benefit.

As we mentioned earlier, developers will be presented with multiple opportunities to convert, reposition or renovate hotels.

Meanwhile, the remaining hotels can plan for the future with a solid market position. It is worth noting that assets with larger accommodation and self-catering facilities, as well as resorts, are expected to do well, while physical distancing remains essential.

Moreover, in order to adapt to new ways of working in a post-COVID world, it is a wise decision to reimagine the services and spaces of the hotels. This change can come in multiple formats, whether it is an increased room area or on-site co-working space, to name a few. Some of the hotels in Europe have started converting their guestrooms into offices on a daily basis for those who prefer not to work from home any more or want a change of scenery.

Hotel pipeline in Austria

According to the TOPHOTELPROJECTS construction database, the hotel pipeline of Austria contains 99 projects with over 13,000 rooms in total. In 2021, there are 31 expected openings with 4,202 additional keys, which will be followed by a further 13 openings with 1,851 rooms in 2022.

Vienna will receive a major share of the new hotels, as 30 projects with 5,489 rooms are under construction at the moment. Innsbruck comes second with five new projects and a total of 597 keys. Steyr, Salzburg and Graz will each see four hotels open in the future.

The hotels that are currently under development are primarily in the midscale and upscale segment. Austrian hotel investment generates 4.25% ROI for leased hotels and 5.25% for managed properties, as of Q4 2020. It is expected that the vaccinations will support a market recovery and stabilize the yield growth.

Highlights

• Decreased VAT rates are one of the main reasons hotel transactions halted in Austria.
• Conversion of hotels into residential and office projects is a perfect solution for overcoming the crisis.
• The year of 2021 is expected to set a record in completed projects, adding 31 hotels to the portfolio of Austria.
• Larger hotel developments with self-catering amenities are more profitable due to the social distancing issue.
• The second half of 2021 will likely be more productive in terms of investments with the introduction of the Digital Green Certification system for all EU member countries in July.