Outlook improves in European hotel markets

Europe’s hotel markets saw fewer properties bought and sold in 2023, as higher interest rates and tighter lending conditions restricted deal making.

According to consultants HVS, transaction volumes were down 19% overall on the previous year, and at EUR10.7bn, were the second lowest level recorded in the last decade. The average price per room sold was also down 16%, at EUR197,000., they reported in the annual European Hotel Transaction Report.

Evidence of the growing impact of higher finance costs came from a quarter by quarter analysis. The first quarter of 2023 saw deal volume ahead of the previous year, while the second quarter volume was 50% below that of the previous year; Q3 and Q4 volumes remained below 2022 comparables.

Mainland focus

There was also a switch in activity country by country. Transactions more than halved in the Netherlands, UK and Italy. Meanwhile investors remained more confident in Ireland, up 37% year on year, and in the far larger markets of Spain and France, both seeing volumes up 21% year on year.

On a city basis, investor activity grew strongly in Copenhagen, Edinburgh, Barcelona and Paris. Meanwhile, city hotels in London, Madrid, Rome and Berlin were less in favour, with all these cities seeing a year on year drop in investor activity.

HVS expects 2024 to be busier, as confidence improves. “The financing environment will be the key driver for increased investment activity as we move through 2024,” said report co-author Matthias Hecht of HVS. “With economic headwinds trending more positively and inflation falling, an increase in hotel transactions is expected.”

Operationally, hotels faced rising costs that threatened to outstrip their rising revenues during 2023. But Cushman & Wakefield recorded hotels in Milan, Paris and Edinburgh doing best, with profits substantially ahead of 2019 levels – at 149% in the case of trailblazing Milan. In contrast, cities such as Manchester, Berlin and Munich languished, with profitability just 80% of 2019 levels.

Better demand outlook

C&W says European hotels should see a modest increase in revpar during 2024, helped by “constrained supply and the continued desire to travel, underpinned by remaining pent-up demand and increasing air connectivity.” It also points to some key demand drivers across the continent, including the Euro 2024 soccer tournament in Germany during June and July, the Olympics in Paris in July and August, and major tours by stars including Coldplay and Taylor Swift.

Easier border restrictions will also encourage more travel across the continent. At the end of March 2023, Romania and Bulgaria joined the Schengen European area of free movement, making for quicker transit at airports for those travelling on business and leisure.

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