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DELHI, INDIA-European hotels have been the darling of investors in hospitality for many years, but investors are beginning to favor the emerging markets of Asia, believing them to hold the greatest investment potential. That’s according to the just released Ernst & Young Hospitality Investment Survey.

Citing figures from Jones Lang LaSalle, the report says that global hotel investment in 2006 reached $72.5 billion, which was 62.9% higher than 2005′s hotel transaction volume. Approximately half of that investment was placed outside of the US, and that amount is expected to grow, the report said, based on the significant portfolio of transactions that occurred in the first half of 2007.

About one-third of the companies that responded to the Ernst & Young survey, which polled more than 300 investors and industry executives worldwide, invest in hospitality internationally. However, more than 46% of respondents reported that they anticipate focusing more on international opportunities.

Of those surveyed, 22% are currently investing in Europe and 15% believe Europe to have the greatest potential for hospitality investment. Asia, however, was believed to hold the greatest potential by 41% of investors, though 19% currently held investments there. With both China and India opening their markets to foreign investment, a growing scarcity of higher quality of facilities in the region and double-digit returns, the stage is set for Asia to become a major investment center in coming years, the report finds.Also of interest, Latin America edged out Europe in the investor popularity poll. Investment in the Middle East continues to grow, particularly in the luxury segment and those with mixed-use components, such as in Dubai and Abu Dhabi.

Of the respondents who indicated an interest in international investing, 33% would seek opportunities in upscale segments. Investors appear to be more interested in properties which attract more international travelers and rely less on local markets.

Investing overseas is not without its perceived risks, however. Respondents to the survey believe the biggest downside for investment globally remains the potential for political instability in developing markets. However, some of this concern is also being mitigated by the enormous growth potential perceived to exist in key markets outside the US. Economic stability ranked second in potential downsides followed closely by currency instability. Also of concern was terrorism and barriers from local legislation.

These risk factors are offset by the potential upside that international hospitality investments offer, the report found. The benefits include: growth potential, which 38% of respondents identified; abundance of opportunity, 24%; higher returns on investment, 24%; and risk diversification, 14%. “Many of these provide the rationale for Asia being perceived as offering the greatest potential for international hotel investments, given China and India’s rapid economic expansion, increased transparency, and easing of restrictions on international investment,” the report says.

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