HVS International European Hotel Valuation Index 2006 1

Highlights• The European Hotel Valuation Index (HVI) shows that hotel

values (expressed in euro) achieved a second consecutive year of growth. On average, values across Europe increased by 5% in 2005, compared with an increase of 3% in 2004. These rises in value followed three years of decline. The European average hotel value is now back at the level achieved in the peak year 2000, although much of this has been driven by growth in Eastern European markets. Many markets, such as Milan, Zürich, Geneva, Rome, Budapest and Edinburgh, have indeed surpassed the 2000 peak, whilst others, including Paris and Hamburg, have come very close.

• We have also seen in 2005 that 18 of the 28 markets under review have achieved an increase in excess of inflationary growth; only five markets – Berlin, Munich, Barcelona, Athens and Lisbon – recorded a decline in average values. In contrast, in 2004 eight markets showed a decline in value and only Barcelona recorded a decline in both 2004 and 2005.

• Istanbul was a star performer in 2005, bringing to an end Moscow’s four-year run of being the market that recorded the highest annual growth in values in our survey. After recording an increase in values in 2004 of almost 17%, Istanbul saw a dramatic improvement in trading performance in 2005: hotel values

increased by 32%. This increase was driven largely by both occupancy (up by ten percentage points) and average rate (up by almost 25%); this led to an increase in RevPAR of 44%.

• Hotel values in Moscow are continuing to reach for the skies, and a double-digit increase was again recorded this year. Values in the city have now seen double-digit increases for six consecutive years, with the exception of 2003 when they recorded an increase of ‘only’ 9%. This now gives Moscow an average value of €240,910 per room, placing it above the Europewide average for the first time.

• Despite a dramatic increase in values in 2005 of 8% (the seventh-highest growth rate in the survey), Warsaw still finds itselflanguishing at the bottom of the table of hotel values per roomwith a figure of approximately €104,500. This is some €16,700 (or14%) adrift of the next contender – Lisbon – at €121,200. Othermarkets finding their hotels in the lower reaches of the table areAthens, Copenhagen, Frankfurt, Stockholm and Istanbul.

• London has retained its position as the most expensive city inwhich to acquire a hotel, this year breaking through the €500,000barrier; the average value per room was €516,120 and the growthrate 7.2%. Paris remains in second place (€484,520 per room andgrowth of 6.6%). There is a wide gap between second and thirdplace in the table of €68,710 before we reach Milan on €415,820.The gap in value between third and fourth place is €39,880; Zürichis in fourth place on €375,990.

European Hotel Valuation Index 2006

This report is produced by the London office of HVS International March 2006

Kristin Thorsteinsdottir and Karen Smith

Tables 1 and 2 Winners and Losers 2004 and 2005 - % Change in Hotel Value (€)

Source: HVS International

Changes in Value

Amsterdam, one of Europe’s strongesthotel markets, has seen hotel valuesgradually decline since 2001, albeit

that this decline was marginal in 2004. In2005, hotel values in Amsterdam rose by 5.7%as the city experienced a 6.5% improvement inRevPAR, compared to 2004. New supplyentering the city’s quality hotel stock has beenlimited in recent years and only one new hotelwas opened in 2005: the 256-room, four-starHotel Artemis, in May. However, it nowappears that hotel supply is on the increaseagain; it is estimated that a total of 4,000rooms will have been added to the greaterAmsterdam area by 2010, although the

majority of these projects are ratherspeculative at this stage. Among theconfirmed additions are the 410-roomMövenpick, which is currently underconstruction and due to open this September,and the 160-room Grand Scheepvaarthuis,which is due to open in December.Development work is also under way on aproposed 250-room Hyatt, which will open inJanuary 2008. Planning approval has beengranted for a 130-room Rocco Forte Hotel,and the plan is for this hotel to open inSeptember 2008.

Since the 2004 peak in hotel values, whichwere driven up by the Olympic Games,Athens’ hotel market has shown a decline inoverall performance. Although the city has

bucked the trend of tumbling occupancy,which has historically been the case amongother host cities, and retained a stableoccupancy of 61%, it has seen average rate fallby almost 21%. This led hotel values in Athensto drop by just over 7% compared to 2004,which is significant, considering that our 2004values had already been adjusted for thedirect impact of the Olympic Games. Perhapssurprisingly, additions to hotel supply in 2005were only minimal and no major hoteldevelopments are under way. Activity in thehotel investment market was also minimal, asowners sought to benefit from all themarketing and media exposure of Athens andGreece in connection with the OlympicGames.

2 European Hotel Valuation Index 2006 HVS International

Despite an estimated year-end increase ofalmost 5% (to approximately 70 million) in thenumber of tourist arrivals in Spain in 2005, thecontinued and substantial increase in newsupply in Barcelona continues to constrainhotel performance. For the third year in a row,the city has seen average room rate decline, by2.4% in 2005 compared to 2004, andoccupancy remain stable at 71%. This hascontributed to a 5.4% decline in hotel values.Despite the significant number of new hotelrooms that has been added to the existingsupply in recent years, there are plans for anadditional 6,500 rooms to be added to thegreater metropolitan area in the next twoyears. Nevertheless, it is worth noting that thenumber of new projects under construction isslowly starting to decrease, and is now back to2000 levels. Among the significantdevelopments opening this year is Hesperia’shotel in the Hospitalet. The 280-room hotelwill be located in the Hesperia Tower, whichat 100 m will be one of the tallest buildings inthe Barcelona metropolitan area. Anotherlocal player planning a hotel in a high-risebuilding is Barceló Hotels, which hasscheduled the opening of the 190-room, five-star Barceló Rambla del Raval hotel for 2007.

Last year we noted Berlin’s impressiveresilience in maintaining its occupancydespite the number of new additions tosupply. With the increase in supplycontinuing throughout 2005, when nearly1,300 new rooms were added, Berlincontinues to impress; the city managed tomaintain occupancy of nearly 69%. RevPARdecreased by 1.8%, which contributed to amarginal decline in hotel values of 0.7%.However, the amount of new supply enteringthe Berlin market in the near future will puteven more pressure on the city’s hotelperformance. The four-star Wallstreet ParkPlaza Hotel in Wallstraße, Berlin-Mitte, isexpected to open its 167 rooms in June of thisyear and the 146-room Rocco Forte hotel theGrand Hotel de Rome is expected to open inAugust. A month later a 364-room Sol Meliáhotel near Friedrichstraße is expected to open.This year, construction work will start on athree-star hotel project on Nürnberger Straße,in the district of Schöneberg, close toKurfürstendamm; the envisaged openingdate for this 300-room hotel is early 2007. Twohotel projects are in the early stages ofdevelopment. Planning permission has beengranted for the construction of a 252-room,three-star to four-star hotel that is due to openin mid 2008 in Berlin-Charlottenburg, close toKantstraße. There are also plans to open afour-star hotel close to the airport atSchönefeld near the existing Holiday Inn inthe first quarter of 2008.

Birmingham continues to reap the fruits of itsmarketing efforts, which in recent years haveattracted an increasing number of foreignvisitors and have boosted activity at theNational Exhibition Centre. While retaining astable occupancy, hotels in Birminghammanaged to increase their average daily rateby 3%, to €100. This contributed to an increasein hotel values of 3%. A number of hoteldevelopments are under way, especially in thebudget and mid-market segments. ChoiceHotels will be opening a 90-room Sleep Inn inthe Star City entertainment complex inOctober this year. A proposed 120-room Etapis due to open at the end of 2007 atBirmingham International Airport and,within the same building, a 150-room Ibishotel is planned. In addition, a 59-roomextension to the Holiday Inn at BirminghamInternational Airport is planned by the end of2007; this extension will take the hotel’s room

count to 200. Plans for a 40-room luxury hotelat the Cube development were announcedrecently. Opening in mid 2008, the Cube is thelast phase of the Mailbox development inBirmingham city centre and in addition to thehotel, it will contain a mixture of office,residential and retail components.

The improvement in hotel performance inBrussels in 2005 was attributable mainly tothe continuing improvement in the Europeanbusiness environment, and to the city’s keypolitical position as the capital of theEuropean Union (EU). Occupancy increasedby 1.5% and RevPAR by nearly 5%; thisincrease contributed to a rise in hotel values of4.5%. Another important factor facilitating therecovery of the hotel market in Brussels is thelimited addition to the supply of qualityhotels. The first hotel to open in Brussels sincelate 2004 was the 149-room Radisson SAS EUHotel, near the European Parliament, whichopened in January this year. The increase insupply will continue to be restricted and thereis currently only one opening confirmed forthe next two years: a 150-room Sofitel, in June.

Since Hungary’s accession to the EU in 2004,Budapest has enjoyed a significant increase inthe number of visitor arrivals. The majority ofthe inflow of foreign tourists into Hungary isdriven by leisure purposes, which has beengreatly influenced by low-cost airlines, whosepassengers accounted for nearly 30% of thetotal traffic at Ferihegy International Airportin 2005. In total, passenger traffic at theairport grew by almost 25% and topped 8million last year. Hotel occupancy grewmodestly, whereas average daily rate grew by

a healthy 10.3% and RevPAR increased bynearly 15%. This contributed to a rise in hotelvalues of nearly 12%, securing Budapest aplace among this year’s major winners.However, the strong performance of themarket over the last two years has whettedthe appetite of investors and we are aware ofseveral new hotel projects that will beopening in the next few years. Hotelscurrently under construction and expected toopen in 2006 include the 107-room BoscoloNew York Palace hotel, a 175-room Novoteland a 55-room spa hotel at the Rac baths. Anumber of other projects are rumoured;however, the planned increase in supply islikely to offset the continuing increase indemand generated by leisure travellerscoming to Budapest.

In 2005 Copenhagen was again rated as oneof the world's ten most popular cities forinternational conventions. The city has alsoexperienced continued growth from leisuretravellers in recent years. In particular, theopening of the Oresund Bridge, linkingDenmark and Sweden, and an increase incruise ship passenger arrivals influenced thestrong room night growth. The hotelconstruction boom in Copenhagen, whichwas ignited in 1999, has brought about anincrease in hotel capacity of 40%; this hasfurther increased the attractiveness of the city,especially to the meeting and conferencesegment. In last year’s edition of the HVI itwas noted that occupancy had risen for thefirst time since the hotel boom began, as nonew upscale hotels opened over the course of2004. The recovery continued in 2005 whenoccupancy rose by nearly five percentage

Table 3 Average Annual Compound Growth Rate 1998-05 and 1993-05 (€)

Source: HVS International

Table 4 Hotel Values - % Change (€)

Source: HVS International

HVS International European Hotel Valuation Index 2006 3

points and RevPAR by nearly 20%. Thisrecovery had a positive impact on hotelvalues, which rose by 10%, placingCopenhagen among the top five cities interms of the greatest growth in hotel valueslast year. It appears that the hotel boom is toresume, as the number of developments is onthe increase again. The 200-room CopenhagenIsland Hotel by the ARP-Hansen HotelGroup, and a 225-room, four-star hotel inScala, close to the Tivoli Gardens, are bothscheduled to open this year. A five-star Tivolihotel project of approximately 160 rooms, butwith currently no exact developmental time-frame, is rumoured to be entering the marketin the medium term, confirming thecontinued interest in the Copenhagen hotelmarket.

The number of visitors to Dublin continuedto increase and despite the continued increasein room supply in the quality hotel market,Dublin’s hotel performance has remainedremarkably resilient. Hotel values increasedby 6.7% year on year, following a modestincrease in occupancy, while average dailyrate was stable for the third year in a row. Thisis particularly impressive given that last yearDublin experienced a significant increase inthe supply of rooms; new hotels included the295-room Clarion Liffey Valley Hotel, whichis managed by Choice Hotels Internationaland which opened in April, the 232-roomJurys Croke Park Hotel, which opened inSeptember, and the 166-room Hilton at Dublinairport, which opened at the end of June.From 2006 to 2009 an additional 2,750 roomsare expected to enter the Dublin hotel market,of which approximately 1,000 will be in thequality hotel market. In addition, variousinternational five-star hotel operators stillplan to enter the market in the near future.However, in the short term Dublin’s hotelmarket is unlikely to experience significantchanges as international demand, especially

demand from the USA and other long hauldestinations, is still suffering from thecontinued strength of the euro. In addition,the new hotel supply that is envisaged to beentering the Dublin hotel market in the nearfuture will make the hotel market increasinglycompetitive environment.

Edinburgh’s hotel industry has been enjoyinga boom in recent years and the city managedto sustain occupancy of 78% for the secondyear in a row. Average daily rate increased byover five percentage points; however, due toexpectations that significant new supply willhit the market over the coming years, hotelvalues remained flat. Developers seem tohave responded to the urgent call made byEdinburgh City Council for more privateinvestment to be made in the city’s hotelindustry, although many projects can still beconsidered to be rather speculative. Theopening of the 132-room Dakota Hotel atSouth Queensferry is scheduled for later thisyear, as is the completion of the €17.5 millionupgrade of the George Hotel, which wasrecently acquired by Principal Hotels. Theconstruction of a 33-room boutique hotel onGeorge Street is well under way and theopening is scheduled for mid 2006. Anotherboutique hotel, the 18-room Le Monde, isscheduled for opening this year. Among themore speculative projects is a 200-room hotelon the site of the former New Street busstation, immediately to the east of the sitewhere Edinburgh Council’s newheadquarters are now being built.

As the overall stagnation in the Germaneconomy continues, with unemploymentfigures hitting a post-war record in early 2005,hotel performance in Frankfurt remainedstagnant. Occupancy dropped by 0.5percentage points, to 61.5%, whereas averagedaily rate grew by a modest 1%. Thiscontributed to hotel values growing by a

marginal 0.2% on 2004. However, in 2006 asubstantial increase in average daily rate canbe anticipated as Frankfurt is one of 12German cities hosting the FIFA World Cup inJune/July. Significant additions to supply thisyear are the 163-room Rocco Forte VillaKennedy, located close to the south bank ofthe River Main and due to open in March, anda 283-room, four-star Mövenpick Hotelscheduled to open in June. Continuing thetrend of 2004, the hotel investment market inGermany remained fairly active during 2005.The eye-catching Radisson SAS Hotel inFrankfurt changed hands for €298,200 perroom when it was sold by HochtiefProjectentwicklung to a group of Danishinvestors.

Preliminary figures for 2005 indicate that thenumber of tourist arrivals in Genevaincreased by more than 11% on 2004. Theaffluent Middle Eastern leisure market, whoseshare decreased significantly following theevents of 11 September 2001 and the war inIraq, now seems to be slowly recovering withan increase in the number of arrivals of 10%year on year. The recovery in tourism,combined with the overall improvement inthe global business climate, helped to producean increase in hotel values in Geneva of 9.1%in 2005. Occupancy rose by six percentagepoints and RevPAR grew by just over 13%.Average daily rate, having been underpressure in recent years following an increasein supply, rose by 3% as some significantupscale hotels were closed for much of 2005for refurbishment. The 103-room Hotel desBergues reopened as a Four Seasons Hotel inNovember 2005, having been closed since late2004. The Hotel Le Richemond closed duringthe year and will reopen in 2007 as a RoccoForte Hotel. The Hotel de la Paix closed inearly 2005 and will reopen as an 84-roomConcorde hotel later this year. There was onenew opening in Geneva in 2005: Accor’s 86-

4 European Hotel Valuation Index 2006 HVS International

room Suite Hotel, which opened in May nearGeneva airport.

The modest recovery in the Hamburg hotelmarket that was noted in last year’s edition ofthe HVI continued throughout 2005;occupancy grew by four percentage points, to71%, the highest occupancy we have noted forthis market since 2000. Average daily ratedeclined by just under 2%, which left RevPARand hotel values in Hamburg virtuallyunchanged on last year. Nevertheless, asHamburg will be one of the cities hostingmatches in the FIFA World Cup later this yearwe expect Hamburg to enjoy a significantimprovement in ADR this year. Additions tothe supply in the four-star and five-starmarkets have been limited since 2001, butdevelopment activity in these segments is theliveliest it has been for years. A 226-roomMövenpick Hotel is under construction in thevicinity of the Sternschanze public park and isexpected to open in November this year. A220-room Hilton Hotel will be part of themixed-use development at Hafen City and islikely to open by January 2008. In the SanktPauli district, in close proximity to theinfamous Reeperbahn, the four-star EmpireRiverside Hotel is currently underconstruction. The hotel is expected to have300 rooms and is due to open in 2007. Other,more speculative, projects include a new NHhotel at the airport, a 225-room Arcotel atSteidamm and a 140-room Flight Hotel atFinkenwerder.

Istanbul’s hotel market has in the pastdemonstrated its ability to recover quicklyfrom adversity, as was the case in 2005 whenthe city achieved an improvement in averagedaily rate of 24.5%; this led to an impressiveincrease in RevPAR of 42.6%. These figureshave contributed to an enormous 32%increase in hotel values on 2004. Theseimpressive results are attributable largely to arecovery in tourist visitation, which increasedby 47% on 2004. Tourism figures in 2005 wereboosted by major sporting events hosted bythe city, events such as the Formula OneGrand Prix in August and the European Cupfinal in May. However, Istanbul also

experienced significant growth in themeetings, incentives, conferences andexhibitions (MICE) segment; the number ofdelegates attending conferences grew by156% in 2005 compared to 2004. With twoexhibition and meeting centres underdevelopment in addition to the existing threeand EU accession negotiations now officiallyopen there is reason to believe that furthergrowth in the MICE segment can be expected.The number of hotels under development inthe city confirms investors’ expectations offuture growth in visitation to the city. A 100-room Park Hyatt hotel is currently underdevelopment in Nisantasi, the boutique andfashion district of Istanbul that is to the northof Taksim. Although construction has not yetbegun it is expected that the hotel will beoperational as early as 2008. Four Seasons hasa second hotel under development, whichinvolves the reconstruction of Atik PashaPalace. The hotel is expected to have 170bedrooms and a scheduled opening date of2008. A Novotel is currently underconstruction in the Zeytinburnu district. Thefour-star hotel is envisaged to have 215 roomsand to be operational by October 2006. Accoralso has a 228-room Ibis under construction inthe city, and this hotel is expected to be openat around the same time. Two majordevelopments are still at the preliminarystage. First, a 300-room hotel in a 50-storeyskyscraper to be named ‘Diamonds inIstanbul’ is to be constructed in the Maslakdistrict. Second, two towers – the DubaiTowers – Istanbul – are likely to becomeprominent features on the skyline by 2008.The mixed-use project, which will cost morethan €420 million, is set to incorporate aluxury hotel.

Portugal’s hosting of the European FootballChampionships in June 2004 had a positiveimpact on visitor growth and the eventcaused a significant increase in hotel demand.There have been no such sporting events in2005, which explains to some extent the bleakperformance of the Lisbon hotel market,where values have declined by nearly 10%.Occupancy in the city fell by nearly fourpercentage points, reaching an average of just

55%. The fall in average daily rate was evengreater, at 14.5%, resulting in a decrease inRevPAR of nearly 20%. The sheer number ofnew hotels added to the Lisbon market inrecent years has put further pressure on hotelperformance. With just over 5,000 roomsavailable in 2004, the stock has increased bymore than 10% in 2005, and it is expected thatalmost 1,000 rooms will be added in the nexttwo years. One look at the developmentpipeline for Lisbon reveals the strong positionthat local hotel operators such as Hoteis Realand Amorim have maintained; they accountfor the majority of the current developments.Two Ibis hotels are under construction: one a120-room hotel in Alfragide and the other a90-room unit in the Sintra area. The hotels areexpected to open in April and May of thisyear, respectively.

London has retained its position as the mostexpensive city in which to acquire hotelaccommodation for the second consecutiveyear; hotel values grew by 7.2% in 2005 (or9.7% when measured in local currency). Aftercelebrating victory in the race to host the 2012Olympic Games, the city was subjected toterrorist attacks on 7 July. The initial fear wasthat these attacks would have a major impacton the overall hotel performance in London.However, year-end figures indicate that theeffect of the attacks has been limited;occupancy has fallen by 1.4% but average ratehas risen by 4%. This left RevPAR to rise byjust under 2%, to €160. The resilience of theLondon hotel industry has been driven byimproving economic conditions and anincrease in visitor numbers, despite theterrorist attacks; figures from Visit London forthe year to November 2005 indicate an overallincrease in visitor numbers of 10%. Thegrowth in the European market was aided bythe strength of the euro against sterling.However, the weakness of the US dollar hasbeen a concern throughout 2005 as it has hadan impact on the number of visitors from theUSA. Nevertheless, the USA is still theleading overseas market, although its sharedeclined by 6% in 2005. The outlook forvisitation to London in 2006 is mixed; acontinued decline in the domestic market is

Table 5 Hotel Valuation Index 1993-05

Source: HVS International

HVS International European Hotel Valuation Index 2006 5

anticipated, while emerging markets inEastern Europe are expected to stimulateoverseas visits. Due to the lack of suitablesites in the city centre, additions to the supplyin the four-star and five-star markets havebeen limited in recent years; however, somesignificant developments are now under wayas new operators enter the market. NHHoteles is about to place itself in the Londonmarket following the acquisition of the 200-room Harrington Hall Hotel in SouthKensington. Another Spanish operatorentering the market is Silken Hoteles, which iscurrently planning a luxury 170-room hotelbehind the façade of Marconi House on theAldwych in central London. Yotel will bepioneering its radical, new hotel concept; thefirst Yotels will be opening inside the terminalbuildings at Heathrow and Gatwick later thisyear and in central London in 2007. SteliosHaji-Ioannou’s first easyHotel opened in 2005and this is set to be followed by others in theforeseeable future. Hong Kong based Shangri-La Hotels recently announced its entranceinto the London market in 2009 when thegroup plans to open a luxury hotel in LondonBridge Tower, which is expected to becomeone of London’s leading visual landmarks.

Madrid’s position as Spain’s key commercialand financial hub is undisputed and, thanksto efforts made by the authorities to increasethe city’s appeal as a leisure destination andthe further development of the MICEsegment, demand for hotel accommodation inthe market has been positively impacted.Figures for the year to October 2005 indicatethat visitation was 11% up on the same periodin 2004. Having experienced a drop in bothoccupancy and average daily rate in both 2003and 2004, Madrid managed an increase inoccupancy last year of 3.6 percentage points,to 65%. However, this increase came at thecost of average daily rate, which declined by2.7%. Despite the overall positive impact onRevPAR, hotel values increased by only 0.6%as concerns of continuing oversupply in thecity remained. Having in recent years sufferedfrom an imbalance between hotel supply anddemand, Madrid will see a bleak outlook for

its recovery in the short term. It is estimatedthat, by the end of 2008, approximately 5,800hotel rooms will have been added to themarket, an increase of approximately 20% onthe existing amount of supply. Among theadditions are a 101-room Etap hotel and a 128-room Ibis hotel, both located on Avenida deAmérica and both expected to open in June2007.

The authorities in Manchester have workedon building the city’s profile with the aim ofincreasing UK and international conferenceand incentive business in Manchester and thesurrounding area. This has led the number ofassociation meetings held annually in the cityto quadrupling from 1995 to 2004. In 2005hotel values in Manchester grew by 6.9%compared to 2004 (or by 7.7% when measuredin sterling). This growth was attributablemainly to the more than 5% rise in averagedaily rate, which, when combined with amodest growth in occupancy, led to RevPARgrowth of 8.6%. Despite the significantgrowth in hotel stock in Manchester in recentyears, occupancy has rarely dropped below70%. This year will see the opening of the 285-room Hilton hotel and in spring 2007 a 284-room City Inn will be opening at thePiccadilly Triangle site, which is currentlyundergoing major regeneration. MacdonaldHotels has plans to enter the Manchestermarket; the conversion of TelecommunicationsHouse into a 230-room hotel is set to start in2007.

Although occupancy in Milan increased bymodest 1.4 percentage points, average dailyrate remained stagnant for the second year ina row. This resulted in hotel values growingby just under 1%. Two new hotels opened inMilan in 2005: the 172-room, four-star ViscontiPalace, early in the year, and the 52-roomBvlgari in May. This year will see the openingof a 340-room NH hotel on Via Tortona. Alsoopening, later this year, on Corso Como is a160-room AC hotel, and the 500-room DominaHotel, located in the old city, close to Fiera diMilano. The 242-room Jolly Hotel is planningto construct an additional 20 guest rooms and

meeting facilities; this work is likely to becompleted in 2007. The Italian luxury hotelchain Starhotels recently announced plans toopen a 200-room hotel near the Fiera diMilano exhibition centre. In addition, we areaware of a number of speculative projects thatmight enter the Milanese market over thecoming years.

The hotel market in Moscow experiencedanother record year in 2005. After a significantincrease in 2004, occupancy declined byslightly more than two percentage points. Thehotel market, meanwhile, recorded anenormous 35% increase in average room ratein 2005 resulting in an unprecedented 30%increase in RevPAR. This contributed to ahefty increase in hotel values of almost 22%.The current shortage of international-qualityhotel rooms is likely to remain in the nearfuture, despite the significant developmentactivity of the last 12 months. Three propertiesopened their doors in 2005: the 301-roomHoliday Inn Lesnaya, in April; the 236-roomSwissôtel Riverside Towers, in May; and thelong-awaited 217-room Courtyard byMarriott, in December. It is estimated thatMoscow’s current hotel room stock is 35,000,although only 8,000 of these rooms areconsidered to be of an international standard.In terms of new projects, a 332-room Ritz-Carlton is expected to enter the market inJanuary 2007 and Four Seasons has secured amanagement agreement to operate a propertyon the site of the former Moskva hotel. It isenvisaged that the hotel will feature 210rooms and luxury residential apartments; thehotel is expected to open in 2009. A 360-roomGrand Hyatt hotel will open in 2009 at theMoscow City Business Centre development.Two Holiday Inns are under construction: the312-room Holiday Inn Suchevsky Val will beoperated under a franchise agreement and theHoliday Inn Sokolniki will be managed byInterContinental Hotels Group. A 220-roomNovotel, which is expected to open in late2007, will be located inside the Gostiny Dvorexhibition and retail complex. The demolitionof the Rossiya hotel has been approved by theCity of Moscow and a 1,000-room complex of

Table 6 Hotel Values per Room 1993-05(€)

Source: HVS International

luxury hotels, a shopping mall and anentertainment venue will be developed on thesite. Further hotel development projects areplanned for Moscow over the coming years,and many of these involve the refurbishmentof existing hotels.

As with many other German cities, Munichsaw hotel performance remain stagnant in2005. Occupancy in the city rose by just overone percentage point, to 68%. Average dailyrate dropped by 3%, and this contributed to aslight decline in hotel values, of 1.4%, on 2004.The city received a few additions to supplythis year, in anticipation of a boost to demandaccompanying the FIFA World Cup to be heldin Germany this year. A new hotel chainAcom Hotels will be launched when its firsthotel opens in Munich this year. The hotel willhave 106 rooms and is expected to open inMarch. Another regional player, FlemingsHotels, will be opening a 113-room hotel inthe city centre in May, and the opening of the240-room Courtyard by Marriott is alsoscheduled around that time. Rocco ForteHotels will enter the Munich market in 2007when its 132-room hotel opens its doors. InApril 2007 there are plans for a 148-room Etaphotel to be opened near München Messe.

Hotel values in Paris increased by 6.6%, anincrease that was driven largely by anincrease in occupancy of nearly fourpercentage points and a relatively stableaverage daily rate. In 2005 a number of newhotels opened in Paris. Among these werethree boutique hotels: the 29-room VillaMalraux, the 17-room Hotel du Petit Moulinand the 27-room Hotel Le Sezz, which islocated on the Left Bank on Avenue Fremiet.A 115-room Express by Holiday Inn wasopened in the vicinity of Roissy Charles deGaulle airport and two Radisson SAS hotelsopened: the 170-room Radisson SAS HotelBoulogne and the 139-room Radisson SAS Vald’Europe at Golf Disneyland. Futureopenings include the 81-room Hotel FouquetBarrière on the premises of Fouquet’sRestaurant on the Champs Elysées in January2007 and a 350-room Le Meridien hotel, whichis currently under development on LaDéfense with an envisaged opening in2007/08. Shangri-La Asia, the parentcompany of Shangri-La Hotels and Resorts,has acquired the former home of PrinceRoland Bonaparte and has plans to convert itinto the 140-room Shangri-La Hotel Paris inlate 2008. This hotel will mark the group’sEuropean debut, coming as it doesapproximately a year ahead of the group’splanned London hotel, and it will be the firstluxury hotel in Paris to be fully owned andoperated by an Asian hotel group. On theinvestment side, Paris and the rest of Franceexperienced a buoyant year with a record€660 million worth of single asset transactionsand €3.7 billion worth of hotel portfoliotransactions (see our sister publication onhotel transactions in 2005). Among the morenotable single asset transactions was the 97-room Plaza Vendome in Paris, which wasacquired by Marriott for €38 million; the hotelis to be rebranded as the Renaissance ParisVendome. The 438-room InterContinentalParis was sold to GIC Real Estate for €315million and is now managed by StarwoodHotels & Resorts under the Westin brand.

The Czech Republic has proven to be one ofthe most attractive emerging centralEuropean tourism destinations. Fuelled by anincreasing number of routes offered by low-cost airlines, Prague was able to recordanother year of growth in tourism visitation.The rise in cheap air travel and the inclusion

of the Czech Republic in the EU are likely tofacilitate healthy growth in both leisure andbusiness travel, and it is estimated that thetotal number of visitors arriving in the CzechRepublic will increase to 14 million a year by2010. After recovering strongly in 2004, bothoccupancy and average rate saw growth ratesfall. The growth in hotel values remainedresilient, increasing by 4.3% in 2005. The dropin occupancy was due mainly to thecombination of a decrease in the averagelength of stay, the decline of visitation fromthe United Kingdom, and the increasingstrength of the Czech koruna compared to theeuro. The attractive market conditions inPrague have sparked the interest of some ofthe more prominent hotel investors andbrands. A 98-room Mandarin Oriental iscurrently under construction and the hotel isdue to open in September this year. In October2007, a proposed 109-room Rocco Forte hotelis due to open. Consent has been given for thedevelopment of a luxury five-star hotel with200 rooms on the U Sixtu site, which is likelyto be operated by Ritz-Carlton and is expectedto open in early 2009. Consent has beengranted for the development of a 165-room LeRoyal Meridien Hotel; it is likely to open inearly 2009.

Italy’s capital Rome saw hotel values increaseby nearly 3%, a rise fuelled by an increase offive percentage points in occupancy and a 2%increase in average rate. The improvedperformance is attributable in part to theextensive coverage the city received in Aprilwith the funeral of Pope John Paul II and thesubsequent inauguration of Pope BenedictXVI. However, it should be noted that Rome has traditionally enjoyed enhancedperformance figures due to the extremelyhigh barriers to entry in the city caused byrigid planning restrictions; in 2005 room stockin the city increased only marginally.Development in 2006 looks set to be moreactive, however. The Marriott Park hotel isdue to open in the middle of the year with 600bedrooms and extensive meeting andconference facilities, making it one of thelargest conference venues in Europe. Alsoopening at the same time is the 140-roomRoma Magliana Ibis hotel. Hilton Hotels iscurrently developing a 300-bedroom hotel atthe airport, which will take the Scandic brand.Other development plans include anadditional conference centre hotel with 700rooms and a 500-bedroom hotel developmentat the Nuova Fiera di Roma; however, notime-frame has been set for thesedevelopments.

The Stockholm hotel market experienced animprovement in operating performance in2005, which caused hotel values to climb by5.2%. Occupancy increased by fourpercentage points and average daily rate grewby a modest 2.7%, leading to an overallimprovement in RevPAR of slightly morethan 8%. Some significant hotel developmentsare under way. A 250-room hotel adjacent tothe International Exhibition Centre andoperated by Rica Hotels is expected to open inMay of this year, and a 450-room Clarion hotelis under construction and expected to open inSeptember 2007. In 2008 Marriott will enterthe Swedish market for the first time with a190-room Courtyard by Marriott inStockholm. The long-discussed Klara PostOffice Sorting Centre project has finallyreceived a proposed tenant under theRadisson SAS brand. The 400-room proposedhotel is due to open in January 2010. A livelyinvestment market was due largely to thearrival of Norgani Hotels, a new Nordicproperty company with its headquarters in

Oslo. Through its portfolio acquisitions, thecompany has purchased properties worthmore than €650 million. Forty-four of theseproperties, totalling more than 7,000 rooms,were in Sweden.

The hotel market in Vienna benefits fromdemand that is a good balance betweenbusiness and leisure. Both segments areforecast to grow, due to increased trade withthe new EU member states in Central Europeand thanks to events such as the Mozart Year(2006 marks the 250th anniversary of thecomposer’s birth), Austria’s presidency of theEU in 2006 and the European FootballChampionships in 2008. Vienna is about to seeits airport expand, its central railway stationredeveloped and additional meeting facilitiesprovided, thus further enhancing theattractiveness of the city. Occupancy inVienna in 2005 rose slightly, by 0.5 percentagepoints, with an increase in ADR leading to anincrease in RevPAR of 4.4%. The effect onhotel values was positive: they rose by justunder 4%. Openings in 2005 included twoboutique hotels: the 70-room Levante Hotelon Auersprergstrasse and the 50-roomDo&Co hotel on Stephansplatz. New hotelsupply in Vienna has been restricted in thepast by the lack of available sites in the citycentre; however, several hotel developmentsare under way and these will put pressure onhotel trading performance, especially in theluxury segment. The 44-room, five-star Hotelim Palais Schwarzenberg closed in Januarythis year for renovation. When it reopens inJuly 2007, the hotel will have approximately90 bedrooms. Also opening in 2007 is the 350-room Hotel Domina Belvedere. A 138-roomMandarin Oriental hotel is expected to openat the beginning of 2008 in an historicbuilding adjacent to the Börseplatz. Fourexisting, interconnecting buildings onSchubert Ring 5 are to be developed into a deluxe five-star hotel with 223 bedrooms byJanuary 2009; the hotel will be operated by anas yet unnamed international luxury hoteloperator. The operator of a five-star hotel thatis expected to open in 2009 on Praterstrasse isalso yet to be confirmed.

In last year’s edition of the HVI we noted along-awaited recovery in hotel occupancy inWarsaw. In 2005 the city experienced anincrease in hotel values of approximately 8%,which is the first time hotel values haveincreased since 2000. The pace of the recoveryin the Warsaw market appeared to havepicked up substantially in 2005 when the cityexperienced a healthy increase in occupancyof nearly 12 percentage points. Again, thiswas accompanied by a decline in ADR,although the overall effect on RevPAR waspositive. Four-star and five-star hotels are stillsuffering from significant oversupply, hencethe continued decline in average daily rate.The improved trading performance wasdriven by Poland’s accession to the EU in 2004and an increase in leisure groups and MICEbusiness. The number of passengers handledat Frederic Chopin airport increased by 16%in 2005 compared to 2004; the construction ofa second terminal at the airport is well underway and it is due to open in May this year.The new terminal will be able to handle 10million passengers a year. It appears that newhotel supply in Warsaw will be regulated inyears to come, and this will facilitate a furtherimprovement in trading performance, ascurrently only two proposed hotels have hadtheir opening confirmed. A 320-room Hiltonhotel is currently under construction and isexpected to open in mid 2007. Construction isdue to start this year on a 70-room, five-starhotel that is to open in January 2008. It is

6 European Hotel Valuation Index 2006 HVS International

HVS International European Hotel Valuation Index 2006 7

expected that the hotel will be operated byVienna International.

Following the bankruptcy of Swissair in 2002,the number of tourist arrivals in Zürichdeclined sharply. However, preliminaryfigures for 2005 suggested that visitornumbers were on the increase again; therewas a modest increase of 3.7% in passengernumbers at Zürich International Airport lastyear. Quality hotels in Zürich registered anincrease in occupancy of three percentagepoints. Average daily rate rose by nearly 10%.This helped produce an overall increase inRevPAR of 15.8% and an increase in hotelvalues of approximately 8%. Hotels currentlyunder development in Zürich include a 155-room Courtyard by Marriott, which isscheduled to open in Oerlikon in early 2007. A350-room Radisson SAS airport hotel projectwith extensive conference facilities has nowbeen confirmed and is scheduled to open inearly 2008. Construction work has started on the 132-room Four Points byArabellaSheraton in Sihlcity, a newentertainment and business district inwestern Zürich; the hotel has an estimatedopening date of spring 2007.

Hotel Values per Room

One look at 2004 reveals that the top fivepositions in our list are unchanged.Our analysis of the values per room in

euro (Table 6) reveals that London hasretained its position at the top for the secondyear in a row, with a value of approximately€516,100 per room. Istanbul, which has for solong languished near the bottom of the list,can now pride itself on having returned hotelvalues that are higher than ever. However,despite Warsaw’s improvement, the city isstill at the bottom with a value per room ofapproximately €104,500.

Outlook

In 2005 we have seen the pace of therecovery pick up following the continuedimprovement in the global economy. This

is especially apparent in the case of London,which, in spite of terrorist attacks, hasretained its position at the top although thecity’s values have still not reached the heightsof 2000. However, the European average isnow on par with what it was in 2000, withgrowth driven mainly by the improvedtrading performance in the Central andEastern European markets.

We are now witnessing development activitypicking up rapidly following the upturn inEuropean hotel markets in 2004 and theincreased availability of debt financing.Hence the growth witnessed in the last twoyears could be jeopardised in some marketsby excessive new supply.

We foresee that the upward trend in hotelvalues that was established in 2004, andwhich continued in 2005, is likely to continuewell into 2006 and beyond. Aside fromincreases in values driven by improvingtrading performance, yields are stillcompressing and driving values up. Theaccessibility of debt financing is continuing toimprove, with lending sources offeringincreasingly competitive terms.

Whilst the threat of terrorism now appears to

have had only a limited effect on the mainhotel markets in Europe, continuing unrest inthe Middle East, together with the propensityof Middle Eastern guests to travel to Europe,could impact values in the short to mediumterm. The other major unknown as we makeour forecasts for the future is the prospect of aglobal avian flu epidemic; this could havecatastrophic implications for the demand forhotel accommodation and thus hotel values ifit were to take hold.

Understanding the HVI

The HVI is a hotel valuation benchmarkdeveloped by HVS International. Itmonitors annual percentage changes in

the values of, mainly, four-star and five-starhotels in 28 major European markets.Additionally, our research allows us to rankeach market relative to a European average.The HVI also reports the average value perroom, in euro, for each market.

The methodology employed in producing theHVI is based upon actual operating data froma representative sample of four-star and five-star hotels. Operating data from Deloitte’sHotelBenchmark Survey were used tosupplement our sample of hotels in some ofthe markets. The data are then aggregated toproduce a pro forma performance for a typical200-room hotel in each market. Based uponour experience of real-life hotel financing

structures gained from valuing hundreds ofhotels each year, we have determinedappropriate valuation parameters for eachmarket, including loan to value ratios, realinterest rates and equity return expectations.These market-specific valuation/capitalisationparameters are applied to the net income for atypical hotel in each city. In determining thevaluation parameters relevant to each of the28 European markets included in the HVI, wehave also taken into account evidence ofactual hotel transactions and the expectationsof investors with regard to future changes insupply, market performance and returnrequirements. Investor appetite for eachmarket at the end of 2005 is therefore reflectedin the capitalisation rates used. The HVIassumes a date of value of 31 December 2005.Values are based on recent marketperformance but the capitalisation ratesreflect the anticipated future trends inperformance, competitive environment, costof debt and cost of equity. The HVI allowscomparisons of values across markets andover time by using the 1993 average Europeanvalue of €148,415 per available room (PAR) asa base (1993=1.000). Each market’s value PARis then indexed relative to this base. Forexample, in 2005 the index for London was3.478 (€516.119/€148,415), which means thatthe value of a hotel in London in 2005 wasmore than 3 times the European average in1993.

Table 7 Hotel Values per Room 2004 and 2005 (€)

Source: HVS International

8 European Hotel Valuation Index 2006

© 2006 HVS International. All rights reserved.

Published by: HVS International, 7-10 Chandos Street, Cavendish Square, London W1G 9DQTel:+44 (20) 7878 7700 Fax:+44 (20) 7878 7799

For further information please contact:Kristin Thorsteinsdottir - kthorsteinsdottir@hvsinternational.comor Karen Smith - ksmith@hvsinternational.comor visit our website at: www.hvsinternational.com

Kristin Thorsteinsdottir is aConsultant & Valuation Analystwith HVS International’s LondonOffice, specialising in hotelvaluation and consultancy. Shejoined HVS in 2004 after completingan MSc in International Hotel andTourism Management from OxfordBrookes University. Kristin wasresponsible for our Research

Department before joining the consultancy team. Sincethen she has conducted a number of valuations, feasibilitystudies and consultancy assignments, mainly in Central &Eastern Europe.

Karen Smith is a Director with HVSInternational’s London office,specialising in hotel valuation andconsultancy. She holds a BSc (Hons)in Urban Estate Surveying and is aChartered Surveyor with over 13years experience in the hotelproperty industry. Karen joinedHVS International in 2001 and hasconducted and managed numerous

valuations, feasibility studies and consultancyassignments across Europe, the UK, North Africa andAsia.

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