Antonella Ceschi takes a look at the Italian hotel market with Michele De Marco, Senior Vice President in Jones Lang LaSalle's (JLL) Hotel & Hospitality Group, based in Milan. Michele specialises in hotel valuations, the selection of hotel operators and the negotiation of management contracts and hotels sales, as well as providing strategic advice with regard to hotel assets.
1. Is Italy still an appealing country for hotel investors?
The hospitality sector is a significant contributor to the wider Italian economy. The Italian market seems to appeal to both hotel investors and hotel operating companies. The volume of transactions exceeded the one billion mark in both 2016 and 2017, and 2019 is set to be a record year, with the market being driven by investment in the luxury sector.
2. Are prices in Italy really much higher than in other countries?
There is more demand than there are available assets, especially for prime locations. As with other key cities such as London and Paris, this lack of product pushes up the prices, but these are arguably justified by the rates achievable in our key markets.
3. Is Italy a spread out market, or are there prime locations?
There is no doubt that investors are drawn to the prime locations, namely Milan, Rome, Florence and Venice. There is something to say about each of these cities in terms of recent developments.
Since Expo 2015, the hotel market in Milan has grown a lot, balancing its traditional corporate hotel demand with a new, more leisure-oriented, demand base.
Rome on the other hand, which has long been one of the largest hotel markets in the world, is now finally developing a long-awaited ultra-luxury hotel offering.
In Florence, the moratorium on the release of new hotel licences, which was introduced by the municipality in 2008, has created high barriers to entry, to the benefit of existing hotels.
Venice is protected by natural barriers, given its physical configuration. Recently introduced local legislation has made the conversion of buildings to hotel use non-automatic. As you know, in the past the change of use of a building in Venice in order to host a hotel could be done by a simple communication to the building department of the Municipality. Now it is subject to a request that has to be assessed by the building department of the Municipality, as in all other cities. The consent is not impossible, but it requires a verification and therefore there is a filter compared to past years.
For all these reasons the main Italian markets remain very appealing for foreign investors.
4. Where the ownership and management of a hotel is separated, what is the preferred contract model adopted in Italy?
For the largest international hotel chains, the main contract model is the management agreement. This type of contract is not regulated by the Italian civil code and provides a significant level of flexibility for both parties involved. Having said that, it's important for both parties to seek out good, specialist commercial and legal advice so that the final agreement is a balanced one, reflecting the needs of both parties.
The alternative model is the traditional lease, which is particularly popular especially with institutional investors, who often feel that this model gives them less exposure to significant business risk.
5. Using your crystal ball…how do you think that the Italian hotel sector will perform in the next 2-3 years?
The prospects for the Italian hotel market are very good, with a significant volume of investments expected in 2019 due to the apparent appetite of international investors. The luxury sector is in great demand, but there is also a good deal of interest in alternative segments of the market from serviced apartments to hostels. In addition, Italy provides a great variety of investment alternatives, ranging from business city hotels to resorts.