The European hotel market is set for strong growth in 2026, with performance reinforced by a 5.6% rise in tourism demand.
The positive outlook is predicted by agent Cushman & Wakefield, in its annual market analysis across the different property asset classes. For hotels specifically, it is pencilling in an expectation that investment volumes will rise to EUR27 billion for the year, as investors express confidence in the hotel space. With demand continuing to move ahead of supply, the business of overnight accommodation is likely to see yield compression.
Leaving a tough year behind
Looking back on 2025, C&W assess 2025 as being a year of “extraordinary challenges” that included the imposition of president Trump’s tariffs, and worries over looming recession with equity markets jumpy. Labour markets cooled, and tensions remained with war in Ukraine and battles in the Middle East. Despite all this, global GDP grew by an average 3.2%, inflation generally fell, and unemployment remained at relatively low levels.
Across Europe, the agents expect a continued growth in tourism, as consumers choose to spend more disposable income on experiences, rather than on goods and other services. The European Travel Commission expects visitor numbers from China to increase by 23% in 2026, while inbound Indian visitors will be up 9%. Despite issues around tariffs, the number of US arrivals is also expected to increase.
Forecasters Oxford Economics predict a 5.6% overall increase in European hotel stays. Destinations expected to enjoy the largest upswing are Warsaw, Athens and Stockholm, while conversely the weakest market growth will be evident in Lisbon, Dublin and Edinburgh.
Rising tourism continues to raise concerns about the impact of visitors on busy destinations. As a result, local authorities are increasingly turning to taxes to moderate demand. Brussels has a 25% increase in its overnight fees planned, while Edinburgh will introduce a 5% visitor levy in the middle of 2026. In both Belgium and the Netherlands, hoteliers are braced for an increase in VAT rates for accommodation. The Dutch levy will grow from 9% to 21%, potentially hitting the growth in international arrivals as visitors see better value elsewhere.
Regulatory challenges
Greater restrictions are also coming down the track for short term rentals. And in some destinations, there are increasingly tight limits on new hotel development. Barcelona, which has effectively banned new hotel construction, has set the pace. For those already owning a hotel in Barcelona, that becomes good news, with stronger pricing power into the future.
New hotel supply continues to be muted, bridled by high construction costs, and difficulties accessing financing at attractive rates. Supply growth across 17 key European city markets is reckoned at an average 2% for 2025, growing to 3.1% in 2026. Lisbon, Manchester, Budapest and Dublin will be among the cities seeing the largest relative increase in hotel inventory. Luxury hotels will represent 4.1% of new supply, while extended stay formats will account for 11.1% of the pipeline.
