Q&A with Carine Bonnejean and Saurabh Chawla, Vice President - Transactions at Westmont Hospitality Group

This is a transcript of the interview, which ties in with our Business Outlook 2025 report. 

Carine: Hello. I'm Carine Bonnejean, Managing Director of Hotels at Christie & Co, and today I'm joined by Saurabh Chawla, Vice President - Transactions for Westmont Hospitality Group, and together we're going to explore what has happened in the hotel sector in 2024 and what we expect to see in 2025. Thank you for joining us, Saurabh.  

Saurabh: Thank you, it's a pleasure. Thank you for having me, Carine. 

Carine: So, we've recently launched our new publication, Business Outlook 2025, and I wanted to take that opportunity to hear your views on what has happened in the European hotel market in 2024 and what we expect to see this year. So, what were the key market trends you saw in the market last year?  

 
Saurabh: Well, 2024 was an interesting year, wasn't it, Carine? If we look at the transaction volume in 2024, it was a bit of a respite. After the slumps of Covid and extending that to 2023, we saw activity rising in 2024. Of course, Europe-wide, it was way below the peaks of 2018-19. But that said, if you carve out the key markets - UK, Spain, Italy, France, Germany - in fact, they were much better than 2018 and 2019. So yeah, encouraging signs, Carine.  

 
Carine: We saw last year about €20 billion of transactions, that's about 50% up on the previous year. So yes, finally I think brokers had enough to do last year to keep them busy, but obviously, as we discussed in the UK it was mostly driven by portfolios. And that was in most of the markets. What did you see in France and in Spain for instance?  

 
Saurabh: The activity was predominantly portfolio-based in the UK, whereas in the rest of continental Europe it was dominated by luxury assets or upper-upscale assets. And that was the stark difference between, if you look at it on price per key basis, in the UK most of the transactions hovered around 500,000 a key or below, whereas most of the transactions in France or elsewhere were almost touching a million a key. 

So that was a stark difference between the two. Italy, Spain, France, they were all up in transaction volume compared to 2018-19. Germany was the only outlier or one of the biggest outliers, I would say, in the sample set where transaction volume was down 70%. There were transactions in Germany, largely they were on the budget side, some portfolios, but largely on the budget side. As we said, the UK was predominantly portfolios. 

London – quite a few assets were traded and then, of course, the other two portfolios. What's also interesting is, if you break it down by cities, London and Paris are still the most liquid markets in Europe. The difference, if you take London and Paris and compare it to other markets, it's night and day difference in terms of transaction volume. 

Dublin – again, no surprises there. It was high up there, but again, much lower than Paris, but still for Dublin it was quite phenomenal. That said, I think that we've seen a lot of supply issues in Ireland and specifically in Dublin. So, I doubt it should be able to hold on to that level coming to 2025.  

What was also interesting in 2024 was to see cities like Athens coming in for the first time, coming into that ranking - Ibiza another one.  

Madrid has been on fire. It seems like it will continue to stay for at least in the short to medium term. All the right parameters are pointing towards a good 2025 and let's hope it stays that way. 

 

KEY FOCUSSES  

Carine: So what were, for Westmont, your key focuses during the previous year? And where did you spend most of your time, Saurabh, last year? 

Saurabh: Our key focus - we were trying to identify gaps in the market. What we were able to assess was France as a country has strong fundamentals. The cost of borrowing is relatively lower compared to many other European counterparts and to the UK. So, we focused a lot on France.  

What we also focused on was Spain. We want to grow into Spain, but Spain, as we discussed, is going through a peak at the moment. There’s transaction pricing, asset pricing, it's really at its peak. So what we found was the gap in Spain, which is that it's actually still cheaper to build in Spain than to buy.  

So we entered into a partnership with Grupo Lar, a very well-respected blue-chip developer to launch greenfield developments across Spain, and the thinking is really to build 120 -130 a key and hopefully sell them at 200 a key in four to five years. So that gap is a value-add, and that's something we embarked upon and spent a lot of time on last year. 

And France as well. We looked at quite a lot of distressed opportunity out there. As you may know, we were fairly successful in buying and getting four assets out of the Naos portfolio as well. Very pleased with that. I think that trend will continue into 2025 as well. 

 
Carine: What were your most enjoyable deals of 2024 and why, most importantly?  

 
Saurabh: I would say Naos is high up there. Largely because of the drama involved in the court and how it swings from one day to the other. Court processes are never easy for anyone. It's lengthy, time-consuming, with very little chance of success, and you have to be strategic throughout. So that whole process, I quite enjoyed it, being strategic on what we should be doing to maximise our chances of getting more out of it. Yeah, it's high up there. It was the highlight of 2024. 

 
Carine: And did you see any other distressed opportunities across Europe? Have you seen a bit more activity maybe than we've seen? Because we haven't seen much for several years. But it sounds to me that there is a bit more happening in various places. 

 
Saurabh: So, we are seeing distressed opportunities. Whether they're trading or not is to be seen, and we will hope that they will trade in 2025. We've seen a lot of distressed opportunities in Germany. We've seen a lot of German operating companies going into voluntary liquidations. We see that trend would reflect into the prop-co pricing coming down. So far in 2024, they were able to hold up to it, but we hope that in 2025 that trend would reverse and there would be a value in the mix, so buying the distress op-cos, distressed prop-cos and then combining them. 

 

COST PRESSURES 

 
Carine: What do you think are going to be the key challenges that we're going to face in the hotel sector this year?  

 
Saurabh: Cost of debt still remains one of the biggest challenges, although we've seen the trends going in our favour. We've had two rate cuts in the UK and in the eurozone. It's coming down, but it's still high up. I think it needs to come down to make it more interesting for transactions. 

Inflation has been a major concern and the biggest challenge. What we saw, since 2019, was the average rate grew at a healthy rate, occupancies were still lagging, but that average rate in percentage terms seems high but not high enough to overcome the inflation aspects of it.  

With average rates now stabilising or stalling and occupancies catching up, inflation is still out there. I think that's going to be one of the biggest challenges. The payroll inflation has been significant across Europe and the UK. Of course, the Budget last year was not very helpful. So we see that the bottom line or the net incomes will still be suppressed because of inflated middle of the P&L. 

 
Carine: And if we look just at the UK, I think that's a good example, last year obviously RevPAR continued to grow, but it was only about 2.6% overall so it wasn’t amazing - London 1.4% - if you start to factor in all the costs that are coming in this year, in the next few months, there's going to be a serious impact. And we've already seen some erosion in P&Ls.   

How do you think that can be mitigated? How do you think about all these cost pressures that we can't ignore anymore? 

 
Saurabh: Because of the average rate increase in the last few years, it's very difficult to push it on average rate again. If you look at average rate inflation, it's more around the 2% mark as you rightly said. We've factored this cost on the P&L and it's 3% to 4% impact. It's more than the inflation.  

So the only respite is occupancy is catching up and to be able to benefit from that increased demand and then run through with that over the next two years until things stabilise. But very little things that can be done to mitigate that 3% to 4% increase because of the Budget, which was presented last year.  

 
Carine: Are you confident occupancy can continue to grow?  

 
Saurabh: We are seeing positive trends across markets, and we remain optimistic that occupancies are following, especially now since average rates have stalled. 

 
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) 

 
Carine: So obviously we are becoming more and more conscious about sustainability issues. I mean, it's in the press pretty much now every day. Nobody can really ignore what's happening. So what is your take at Westmont on ESG and what do you do for your properties? 

Saurabh: ESG is at the heart of what we do at Westmont. We take pride in it. Westmont has a school in Lisbon where it's a business school for aspiring hoteliers and it’s something we've been coming to do for the last several years. More towards our hotels, we are working towards various European government targets of ESG and we are hopeful to achieve those in the next few years. 

And I think no one has a choice on this, the targets are out there. Everyone has to work towards meeting those goals in the next three to five years.  

 
Carine: Have you seen any green premiums in the market?  

 
Saurabh: We are seeing green premiums. They are on the rise. I would say countries like Germany, France are way ahead than many other countries, but we are seeing more and more of those coming in too. We haven't started factoring those in our underwriting, but I think it's only a matter of time when we start factoring those in. 

Carine: Also, sometimes the first question we get when we put something on the market, is “Where are we on the taxonomy of the asset?” 

 
Saurabh: And I think that'll be a key factor as well in driving the transaction volume over the next two to three years, because most of the assets which have been held in the long-term need significant CapEx. And most of this is defensive to adhere to the ESG regulations, and that would be a driving factor for a lot of investors to put it out in the market. With interest rates coming down now, I think we will see a lot of volume for those assets coming to the market now. 

 
OUTLOOK FOR 2025 

 
Carine: So now looking to the future, when we did Business Outlook, we did a survey across hotel owners and investors to see what their plans were for 2025. And actually 63% of people said they were either looking to buy or to sell this year, which is good and reflects what we have both been seeing since the beginning of the year in terms of activity. 

 
So generally, whilst we think there might be less portfolio activity in the UK, because I think we are aware of deals maybe in other countries which will drive some portfolio activity, we're going to see more transactions and possibly quite a lot of non-core and individual asset coming to market. So, what are your views in terms of what we can expect for this year?  

 
Saurabh: At least, talking from a Westmont perspective, we on behalf of our several partners plan to put three of our assets in the market. We think it would be good timing, this year, again, reflecting on interest rates coming down and the positive general outlook of the European market. So, we'll see how that goes on, but that's the intention.  

 
In terms of buying, we're always out there looking for value-add deals, opportunistic deals and that, we think, we will continue to and it should hopefully be a positive year for that. Given all the assets which have been on hold for the last few years would come to the market, there's a lot of capital out there chasing deals. So that's also driving the pricing to a certain extent. We think all that would follow through into 2025. And as we discussed, the trends of transaction volumes are rising and we'll see a decent uptick in activity this year.  

 
Carine: Do you think we're going to exceed the €20 billion this year? 

 
Saurabh: I have a feeling we will, Carine. All the pointers are pointing towards that direction.  

 
Carine: It's always difficult to know because the first month of the year is always a tough one, but then it picks up. I think, as we discussed, based on activity, pitching, what's coming to market probably this year, we should see people have decided to move because they need at some point to. 

 
Saurabh: You made a very good point by saying the first month of the year is an important one. And January this year was unusually busy. If what you're saying is true and if what we've seen in January is true, I think, we could be in for a good 2025.  

 
Carine: What's your view on pricing? And do you think we can still find double digit AOR opportunities?  

 
Saurabh: We were hoping for pricing to come down last year and the year before. We didn't see much movement relative to the interest rates. Now the interest rates are coming down, with pricing staying where it is. This element of interest rates coming down would help the transaction volume and would fuel transactions this year. 

 
Carine: We do a pricing index every year for the UK, and ours went up by 3.8%. So, I think it’s a debate every year, but generally, pricing doesn't look like it's really changed in any way or decreased compared to the previous year where it had decreased a bit. But on that side, it seems to continue to go up.  

 So, you spent a lot of time in France last year. So where are you going to spend time in 2025?  

 
Saurabh: France is still high up there, Carine, I think there's still a lot more to do in France, we're active on a few deals currently in France. Spain, again, followed through from last year with what we're doing with Grupo Lar, we'll see a bit of activity in Spain but largely through greenfield or brownfield developments. 

 
Germany, as we said, if we can call it, it's at its bottom. I think, when you're at bottom, there's only one direction one can go at. The institutional investors have been holding on for some time now. So, there's a limit until when they can hold on to. We hope they would take an optimistic view and put those assets on the market. And those assets would reflect the current pricing. So that's something to watch out for. 

 
We are quite exposed in Italy. We've got almost over €1 billion worth of portfolio in Italy. We want to capitalise on that and grow more in Italy as well. So I think, for us, France, Germany, Italy and of course, the UK. We’re seeing an increase in activity in London hotels. We would try to keep our attention to those and continue to grow in London and other key cities in the UK as well.  

 
Carine: I think the UK is going to have another good year because some of these large portfolios will drive probably some non-core disposals at some point this year, which will fuel quite a lot of individual asset transactions. We had a good load last year. We did about a hundred hotel transactions in total, which is probably, for the UK, the normal average for us. So that’s a good year. But again, more non-core. 

 
Italy, just the beginning of the year, we've already looked at four projects in four weeks, disposals as well. So, I think there is going to be more activity. 

 
France has continued to be superbly busy. Big portfolios are also in the market either in some sort of administration or general sales. So I think France is going to have a good year and Spain remains a big favourite.  

 
But we've also seen a bit more activity in the Nordics and in the Netherlands as well. So, I think generally across Europe it’s going to be a very busy year. 

 
Saurabh: We expect to see a lot of big boxes coming to market in London this year. So I think, that would be the characteristic of London this year. The only exception to what you said is the Netherlands. We think that the Netherlands is going through tough times because of governmental policies, high inflation and limited RevPAR growth. 

 
We are overexposed in the Netherlands. We would like to hold on to that and look for opportunities to grow that platform as well, but carefully. But beyond that, you're right. The rest of Europe looks positive and there's a lot to do.  

 
Carine: Thank you so much for your time, Saurabh. 

 
Saurabh: Pleasure. 

 
Towatch the full video interview, visit:  https://www.youtube.com/watch?v=QyZnd9L6abc