* European transaction volume up 39 pct in 2013
* Pension funds, private equity now more interested
* Budget sector, regional hotels draw interest
BERLIN, March 6 (Reuters) - Europe's hotel sector is finding its financing options are the best in years as investors seek better returns in a low interest rate environment and economies emerge from bruising recessions, fanning optimism for the rest of the year.
Industry executives say lenders and investors now understand the sector better, seeing it more as a business investment than a straight property play.
"It's the first time in five years that we've been able to say people are confident about deal flow and the availability of finance," said Karen Friebe of law firm BLP, which released a study showing 97 percent of hotel industry professionals expect revenue per available room to rise in 2014.
Hotel and leisure industry consultancy HVS London said total hotel transactions across Europe reached a value of 7.7 billion euros ($10.6 billion) in 2013, a 39 percent jump from 2012 but still well below the 18.8 billion seen in 2007.
HVS said investor appetite was strong in the first few weeks of the year. Jones Lang LaSalle expects global deal volume in the hotel industry of $50 billion this year - up 10 percent from 2013.
"I'm hoping there'll be some interesting portfolio deals this year with medium-sized deals, up to 15 hotels," Friebe said at the IHIF hotels conference in Berlin.
Research by advisor Grant Thornton suggests around one in five hotel businesses plan to invest in new buildings this year.
While half of the experts it interviewed expected banks to be the principal lenders for such projects, a third thought insurance funds and private equity would be the main participants. In the past, retail banks and high net worth individuals have dominated the sector.
InterContinental Hotels Group's Europe head Angela Brav said the fact that deals were not being lost because of a lack of access to capital made for a refreshing change.
"We're also seeing people that were doing more in residential and offices now dabbling in hotels," she added.
Intercontinental vies with the likes of France's Accor , and U.S. firms Marriott, Hilton and Starwood Hotels to get travellers into its European hotel rooms.
Starwood Hotels signed 152 deals last year for franchised or managed hotels, a record for the group, thanks to the return of capital to the sector.
"The trends and tailwinds are such that we have every hope that it will be as strong as last year or even stronger," Simon Turner, the company's president of development told Reuters in Berlin.
Simon Vincent, head of EMEA at Hilton Worldwide said there was appetite for risk and new lending, adding that even regional banks had opened up.
The London Hotels Team at Lloyds Bank wrote about 250 million pounds ($418.3 million) in new loans last year and could be interested in doing a similar amount this year.
"If the right deals are there, the bank would have the appetite to try to replicate" last year's performance," said Tony Burnell from the Lloyds team.
But he said there were a lot more people looking at the same marketplace now, reducing the chances of finding the right deal.
BLP's experts recommended investors look more at those hotels that have been under-invested in recent years and said the UK's regional market - outside of the London and the top cities - was of interest.
"Especially with prices in London, those looking for percentage return targets have to go elsewhere, so that's why we're seeing more interest in the regional market," Nick Skea-Strachan of BLP said.
Hotel company managers were encouraged by signs of growth in European economies and said business at regional hotels had picked up, increasing their attractiveness.
"We're all optimistic. Finally we're starting to get back on track," said Amy McPherson, Europe head of Marriott International.
CHEAP AND CHEERFUL
The economy hotel sector is attracting much investor interest. The real estate arm of German investor Union Investment, which as of June 2013 had assets under management of 23.3 billion euros in sixteen real estate funds, has set up a 300 million euro fund for investors in budget/economy hotels.
"At the beginning, it was very difficult to engage investors' appetite but now they're queuing up," the real estate division's Frank Billand told the Berlin conference.
With many consumers and businesses still keeping a tight rein on spending after the economic downturn, the low-budget end of the market in Europe has come to the fore, with discount retailers grabbing market share.
German budget chain Motel One says around 65 percent of the people who stay in its hotels are travelling for business.
"More or less every hotel is ripped out of our hands," said Markus Beugel from property developer GBI, which has worked on hotels with Motel One.
Marriott is entering the sector for the first time with a new brand called Moxy, with the first hotel due to open in Milan in September.
At the other end of the scale, deals to buy 'trophy assets' look set to remain popular, especially with high net worth individuals who do not have return targets, unlike the private equity investors who eye at least 15 percent return on equity.
"There will always be an element of trophy buying in the hotel industry. It's like buying a diamond - it's something that you want to own, said Gillian Saunders from Grant Thornton.
A closely watched deal last year was the sale of the InterContinental Park Lane to a Qatari investor for 463 million euros, equivalent to 1 million euros per room.
All eyes are now on the possible sale by InterContinental of the Le Grand hotel in Paris.
"We're always getting offers. At some point it will be the right offer but we're not formally marketing it," IHG's Europe head Brav told Reuters.