Hotels & Hospitality Hotel Intelligence Rome 2013 One of the great historical cities of Europe, Rome remains one of the most visited cities in the world. The luxury hotel sector in the Italian capital has experienced steady growth in the first seven months of 2013 and ADR can be expected to show strong long term growth.

2 Hotel Intelligence: Rome

Table of Contents

Contributors

Market Snapshot

3

Tourism demand increased in 2012 albeit at a slower pace

4

Weak Italian economy has affected passenger volume

5

The ICCA ranked Rome twentieth in 2012

6

Stable hotel supply

6

Hotel developments

7

Room yield still affected by the economic crisis

8

Claudia Bisignani Senior Vice President, Rome [email protected]

Sara Ferrajoli Associate, Rome [email protected]

Alexander French Research Assistant, EMEA [email protected]

Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from Jones Lang LaSalle’s Hotels & Hospitality Group, please visit: www.jll.com/hospitality

Hotel Intelligence: Rome 3

Market Snapshot Tourism: Rome is Italy’s capital city and its most important tourist destination, with a well-balanced mix of corporate and leisure demand. Following 2 years of exceptional growth in 2010 and 2011, tourism demand to the capital strengthened further in 2012, albeit at a slower rate due to the continued weakness in the global economy.

Supply: At March 2013, Rome offered 942 hotels comprising over 47,400 bedrooms, with the 4-star segment constituting 52% of the city’s room stock. Despite the recent increase in internationally branded hotels and the commitment from many hotel operators to expand in Rome, the number of branded hotels in the city remains relatively low compared to other major European cities.

Trading: Rome has historically been considered one of the most resilient markets in the country, benefiting from strong occupancy levels and competitive average room rates. Trading performance in Rome’s mid to upscale hotels continues to be affected by the economic crisis, with a reported drop of 4.8% in revenue per available room (RevPAR) by the end of 2012, backed by a reduction in occupancy levels. The luxury segment has been more robust, benefiting from its higher reliance on international demand. It strengthened further in 2012, with a year-on-year increase of 3.5% in terms of room yield, driven by a combination of increases in occupancy and average room rates.

4 Hotel Intelligence: Rome

Tourism demand increased in 2012 albeit at a slower pace Rome: Tourism Trends

Visitor Arrivals (000s) Domestic International Total Growth p.a. (%) Bed Nights (000s) Domestic International Total Growth p.a. (%)

CAAG 2005–12 (%)

2005

2006

2007

2008

2009

2010

2011

2012

2,691 4,098 6,790 7.8

2,867 4,605 7,472 10.0

3,134 5,182 8,315 11.3

2,999 4,901 7,900 −5.0

2,942 4,795 7,737 −2.1

3,211 5,302 8,512 10.0

3,444 5,801 9,245 8.6

3,609 6,111 9,721 5.1

4.3 5.9 5.3

5,320 11,262 16,582 9.3

5,674 12,589 18,262 10.1

6,149 14,095 20,245 10.9

5,781 13,346 19,127 −5.5

5,637 12,994 18,631 −2.6

6,114 14,282 20,395 9.5

6,506 15,516 22,022 8.0

6,743 16,219 22,962 4.3

3.4 5.3 4.8

Source: Ente Bilaterale Turismo del Lazio

Rome: Hotel Arrivals and Bed Nights

Rome: Top Feeder Markets 2012 vs. 2011

Arrivals (000s)

10,000 8,000

25,000

Japan

20,000

Germany

15,000

6,000 10,000

4,000

5,000

2,000

Bed Nights (000s)

12,000

UK USA Spain France

0

0 2005

2006

2007

2008

Visitor Arrivals

2009

2010

2011

2012

Bed Nights

0

500

1,000

1,500

Visitor Origin 2012

2,000

2,500

3,000

3,500

4,000

Visitor Origin 2011

Source: Ente Bilaterale Turismo del Lazio

Source: Ente Bilaterale Turismo del Lazio

Rome is Italy’s largest city and is considered the country’s most important tourist destination, benefiting from a welldiversified market mix. Rome has an unparalleled archaeological, cultural, artistic and historical heritage, making it one of Europe’s and the world’s most visited, famous and attractive capitals. Rome can truly be classified as a ‘global city’ and is also widely recognised for its charming traditions, the unique character of some of its neighbourhoods, its breath -taking panoramic views, beautiful parks and growing nightlife scene.

Rome experienced a period of exceptional growth in 2010 and 2011 with arrivals and overnight stays increasing by on average 9.3% and 8.7% per annum, respectively. 2011 proved to be a very successful year for the capital as both domestic and international demand reached an all-time peak of 9.3 million arrivals and over 22 million overnight stays. This positive result was boosted by international demand, with foreign arrivals and bed nights in the Capital reaching 5.8 million and 15.5 million, respectively.

Hotel Intelligence: Rome 5

Weak Italian economy has affected passenger volume Despite the adverse economic environment, tourism demand to Rome strengthened further in 2012, although at a slower rate than in the previous 2 years as arrivals and bed nights increased by 5.1% and 4.3% respectively. Demand in 2012 continued to be driven by international guests, which showed stronger growth rates compared to domestic demand, confirming Rome’s reputation as an established international leisure destination. Unlike many leisure destinations in Italy, however, domestic demand did post positive results at yearend.

Rome Airports: Passenger Arrivals 50,000

40,000 30,000 20,000 10,000 0 2005 2006 2007 2008 2009 2010 2011 2012 Ciampino Airport

Despite the current economic challenges, results for the first 3 months of 2013 were promising, backed by the papal conclave and the Easter break. At year-to-date March 2013, arrivals and bed nights had increased by 5.4% and 5.8% respectively, fuelled by strong growth rates recorded from the BRIC countries (Brazil, Russia, India and China) together with Argentina. International demand represented 70.6% of bed nights in 2012, in line with the market share recorded in 2011. International bed nights have traditionally been dominated by the USA, which recorded almost 3.7 million bed nights in the city, followed by key European countries such as the UK, Germany, Spain and France, and by Japan. In 2012, visitation increased from nearly all of the city’s major international source markets, except from Spain which reported a 3.3% reduction.

Fiumicino Airport

YTD YTD May May 2012 2013

Source: Assaeroporti

Rome is served by two international airports: Fiumicino and Ciampino. Both airports benefit from their proximity to Rome, being located about 32 km west and 16 km southeast of the city centre, respectively; however, they suffer from poor public transport connections to the city centre. Fiumicino is the leading hub in the country and in 2012 was the eighth largest airport in Europe in terms of passenger traffic, with close to 37 million passengers at year-end. Following 2 years of healthy growth, boosted by international passengers, passenger volume across both airports fell by around 2.2% in 2012, as a result of negative trends in the domestic economy. Domestic passenger numbers fell by 7.9%, whereas international volume increased by 0.6%. Total passenger numbers were, however, higher than 2010 levels. As of May 2013, all airports had experienced a decrease in passenger arrivals compared to the same period in 2012. Rome’s airport hub registered a 3.9% decrease year-on-year, driven by a significant decrease in domestic passengers at both Fiumicino (−10.4%) and Ciampino (−19.8%). A contraction in international passengers was registered at Ciampino airport, whereas international passengers at Fiumicino remained largely stable (+0.8%).

6 Hotel Intelligence: Rome

The ICCA ranked Rome twentieth in Stable hotel supply 2012 Rome: Hotel Supply (as at March 2013) Grade Establishments Rooms 5-star 27 3,753 4-star 238 24,830 3-star 338 13,208 Other* 339 5,619 Total 942 47,410

Rome: International Conference & Exhibition Demand 120

Number of Events

100 80 60

% of Total 7.9% 52.4% 27.9% 11.9% –

*Other incudes 1 and 2-star hotels. Source: Ente Bilaterale Turismo del Lazio

40

20 0 2005

2006

2007

2008

2009

2010

2011

2012

Source: ICCA

Rome’s trade fair – Nuova Fiera di Roma – which opened in 2006, is located 16 km from the former fair in the EUR business district, on the motorway between the city ring road and Fiumicino Airport. The trade fair, which covers an area of approximately 92 hectares, competes with major Italian trade fair destinations such as Milan, Rimini and Bologna. In 2012 it hosted 35 exhibitions, resulting in 136 days of activity, indicating increased activity compared to 2011. Plans exist to enhance Rome’s attractiveness further as a conference and exhibition destination through; the enhancement and expansion of existing venues, such as the Palazzo dei Congressi and the Palazzo della Civiltà italiana, located in the EUR district, and the development of a new Congress Centre, also to be located in the EUR district. This imposing development is anticipated to become a landmark building in the area. According to the International Congress and Convention Association (ICCA), the number of events in Rome increased from 92 in 2011 to 98 in 2012. In terms of its global ranking, Rome is first among Italian cities, although it lost one position compared to 2011 and is now at twentieth place.

At March 2013, the graded total hotel supply in Rome comprised 942 hotels with a total of over 47,400 rooms and 95,000 beds – substantially unchanged compared to 2012 levels. The city is dominated by 4-star hotels, representing 52.4% of the total room stock in the market. The 5-star segment accounted for 7.9% of all hotels in the city, which is below other major European cities, such as London, Paris and Berlin. Over the last 5 years, development activity in Rome has mainly been concentrated in the upscale segment, with compound annual average growth (CAAG) of 4.3% in the number of 4-star bedrooms and of 2.3% in 5-star bedrooms between 2007 and 2012. The most significant opening in 2012 was the 5-star Gran Meliá Rome, a luxury urban resort featuring 116 guest rooms located in the historical district of Gianicolo. In the last 2 years, major developments have been recorded by the ‘alternative establishment’ sector, which is becoming a strong competitive segment, totalling almost 50,000 beds. Despite the recent increase in internationally branded hotels in Rome, such as the Jumeirah Group, Barcelò Hotels & Resorts, Hilton and Meliá Hotels International, the number of branded hotels in the city is relatively low compared to other major European cities.

Hotel Intelligence: Rome 7

Hotel developments

Rome: Hotel Developments (as at July 2013) Recently Opened in 2012–13 Hotel Name Gran Meliá Rome Hotel MM Hotel Rome Times Hotel Total Rooms Recently Opened

Location Via del Gianicolo EUR

Rooms 116 191

Grade 5 star 4 star

Due Date Q2 2012 Q1 2013

Operator Melià Hotels International Amapa

64 371

4 star

Q1 2013

Hotusa

Rooms 84 105

Grade 5-star 4-star

Due Date 2013 2013

Operator To be defined Alpitour

Via Milano – Centre

New Developments 2013–17 Hotel Palazzo Montemartini Hotel Via Palermo

Location Via Volturno – Centre Via Palermo – Centre

JK Place Roma Renaissance Rome Mezzocammino

Via Monte d’Oro Mezzocammino

30 340

5-star 4-star

2013 2014

JK Palenca Luxury Hotels

DoubleTree by Hilton Valle dei Casali Hotel Giustiniano

Valle dei Casali – Aurelia EUR

305 181

4-star 4-star

2014 2014

Hilton To be defined

Central Station Rome Hotel Project New Congress Centre

Via Marsala – Centre EUR

186 450

4-star 4-star

2014 2014

To be defined To be defined

Hotel Project Rome East Hotel Project Terminal 1 FCO

Via Prenestina Fiumicino International Airport

148 275

3-star 4-star

2015 2015

Four Seasons Hotel Rome

Piazza Verdi – Parioli

200

5-star

2017

Shangri-La

Via Veneto – Centre

100

5-star

2017

Hampton by Hilton To be defined Four Seasons Hotels & Resorts Shangri-La Hotels and Resorts

Total Rooms Proposed/Under Construction 2013–17

2,404

Source: Jones Lang LaSalle Hotels & Hospitalty

Major openings expected by year-end 2013 include the opening of the 30-key JK Place, located in the city centre, opening in September, and a 4-star hotel located in Via Palermo, recently acquired by Sorgente Group and to be managed by Alpitour. In addition, the leading hostel chain, Generator Hotels, has recently acquired a residential building on Via Principe Amedeo, to be converted into a 80-room hostel accommodating up to 264 guests. The hostel is expected to open by Spring 2014.

Additional openings expected in the medium term include a 340 room Renaissance hotel, currently under construction in the outskirts of the city (Mezzocammino), and two hotel properties located in secondary locations, which are expected to be encumbered with a franchising agreement with Hilton, under the brands of DoubleTree and Hampton by Hilton. In the long term it is expected that the proposed Four Seasons Rome hotel project will also be realised. Rome: Hotel Supply 2003-2014F 55,000 50,000 45,000

Bedrooms

Rome remains a highly attractive city for hotel operators seeking flagship properties in Italy. However, hotel development in the city is expected to remain moderate in the short term, with 219 guest rooms planned for 2013 and about 1,500 rooms in the pipeline for 2014.

40,000

35,000 30,000 25,000

20,000

2003

2004

2005

2006

2007

Developments

2008

2009

2010

Existing

F = forecast Source: Jones Lang LaSalle Hotels & Hospitality

2011

2012 2013F 2014F

8 Hotel Intelligence: Rome

Room yield still affected by the economic crisis Rome: Quality Hotel Trading Performance 2005 2006 Occupancy % 71.7 73.7 ADR (€) 108.8 111.4 RevPAR (€) 78.0 82.1 RevPAR Growth 8.4 5.4 Inflation 2.1 2.5 ADR 2012 values (€) 126.5 126.4 RevPAR 2012 values (€) 90.6 93.2

2007 70.1 116.7 81.8 −0.4 2.0 134.1 91.0

2008 64.4 117.2 75.4 −7.8 3.3 126.2 81.3

2009 61.0 100.1 61.0 −19.1 0.8 107.0 65.2

2010 64.5 101.5 65.5 7.3 1.6 106.7 68.9

2011 63.9 99.8 63.8 −2.6 2.8 102.0 65.3

2012 60.7 100.1 60.7 −4.8 2.3 100.1 60.7

Note: Selection of 4 star hotels Source: STR Global

In contrast, the luxury segment strengthened further in 2012. RevPAR increased by a further 1.9% compared to the previous year, boosted by a 3.8% recovery in average rates, as the segment depends mostly on international demand.

Rome Year-to-Date Trading July Occupancy (%) ADR (€) RevPAR (€)

2012 60.8 99.6 60.5

2013 61.7 97 59.9

Change (%) 1.5 −2.6 -1.1

Rome: Quality Hotel Trading 200

100% 80%

150 100

40% 50

20%

0

Occupancy

60%

€ (2012 values)

Rome’s mid-upscale hotels are still being affected by worldwide political and economic issues, Italy’s recessionary economy and a gloomy economic outlook. From 2007 to 2009, Rome hoteliers saw a downward in performance, with occupancy declining drastically in combination with a drop in average room rates. Although hotel performance quickly rebounded in 2010 as room yield started to show encouraging growth compared to the previous year (+7.3%), in 2011 RevPAR declined by 2.6%, and in 2012 the city suffered again with RevPAR further falling by 4.8%, backed by a reduction in occupancy levels.

0% 2005

2006

2007

ADR 2012 values (€)

2008

2009

2010

2011

RevPAR 2012 values (€)

2012 Occupancy

Note: Selection of 4 star hotels Source: STR Global

The table below shows that the Rome hotel market experienced declining CAAG rates in terms of average rate and RevPAR performance over both a 10 year and a 5 year period. Performance results in real terms in the 5 year period showed a higher decrease than in the last decade, and average occupancy in the 5 year period was some 3.2 percentage points lower than in the 10 year period, indicating that trading in Rome has been substantially affected by the negative economic environment.

Source: STR Global

Rome Trading Growth Rates

At year-to-date July 2013, room yield had declined by 1.1%, primarily due to a 2.6% fall in average room rates compared to the same period in 2012.

Average occupancy (%) ADR CAAG (%, 2012 values) RevPAR CAAG (%, 2012 values) Source: STR Global

2003–12 66.1 −3.4 −4.0

2008–12 62.9 −5.6 −7.0

Hotel Intelligence: Rome 9

Trading expectations are still uncertain Rome Quality Hotels: Room Yield Seasonality 120 100

80

€

60 40 20

0 Jan Feb Mar Apr May Jun 2010

2011

Jul

Aug Sep Oct Nov Dec

Rome continues to represent one of Europe’s leading tourism destinations. In 2012, the city strengthened its position as one of the most visited cities in Europe, with tourists being attracted by the city’s unique artistic and cultural heritage. Growth was recorded in the number of both domestic and international travellers, although only in the upscale and luxury segment, whereas lower-tier hotels recorded a negative trend. The papal conclave and the early Easter break in March had a positive impact on demand for hotel accommodation in 2013 and by year-end demand is anticipated to improve further compared to the previous year.

2012

Source: STR Global

Occupancy and room rates in Rome are quite seasonal, with regular spikes during the months May–June and September– October, mainly represented by leisure demand. However, demand seasonality in Rome is set to reduce in view of corporate and events demand, which has recently strengthened as a consequence of an increasing number of companies choosing Rome for their corporate headquarters, coupled with the new trade fair complex and the expected new Congress Centre.

Notwithstanding the importance of Rome’s hotel market, the outlook for hotel performance in the short to medium term is likely to remain weak for the midscale segment, with RevPAR expected to decline slightly in 2013. This is due to weak nearterm recovery prospects in Italy, as recent indicators signal further contraction in real GDP in the latter half of 2013. On the other hand, the outlook for the luxury segment looks promising. Luxury hotels are expected to benefit from a further strengthening in international demand and growth in average daily rate (ADR) is expected to rise above the rate of inflation, as already reported in the first 7 months of the year.

Hotel Intelligence: Rome

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