More than 250 senior executives from the hospitality industry converged at the Royal Lancaster Hotel in London last week to consider the prospects for European hotel investment during this period of uncertainty. The general consensus was that economic recovery would be evident from late 2002 and the current period of volatility and downturn would be tempered by the industry's long-term stability.

The events of 11 September and the comparison with the Gulf War featured heavily in the analysis. Speakers highlighted that hotels are more profitable now compared to the early 1990s and have greatly improved efficiencies, more sophisticated financial structures and a reduced threat from new supply. Consequently, although the rate of decline for US hotels' revenues is expected to be double the 2.5% fall experienced in 1991 at the height of the Gulf War, the industry is in a far stronger position to withstand the effects. Among all the gateway cities in Europe, London is expected to bear the heaviest drop in revenue at 14% for the full year.

The impact of 11 September has resulted in investors exercising more caution, taking a longer-term investment view and there are clear signals that geographic diversification in real estate will reduce investor risk. Although returns are expected to be lower than for some years, the sector is likely to continue to offer good relative value for the astute investor, supported by low interest rates.