HVS European Hotel Industry: 2023 Recap and 2024 Outlook

Northern Europe

By Charles Human , President – Europe, and Sophie Perret , Managing Director?

In 2023, continued strong RevPAR growth has been met with pressure on operating expenses and higher interest rates, with the latter particularly having a dampening effect on values and transaction activity. Through October, multiple markets (such as Paris, Rome, Brussels, Barcelona, and Bucharest) have seen more than 15% average rate growth this year compared to 2022, and even more markets have recorded more than 25% RevPAR growth. The most growth occurred in Amsterdam, Brussels, Milan, Prague, and Rome. Elsewhere, average rate increases have already started to soften, and we anticipate only modest growth in 2024. Counterbalancing this trend, cost inflation is expected to ease, although utility prices may remain volatile given the current conflict in the Middle East.?

Transaction volume across Europe so far this year has totaled around €11 billion, down more than 30% when compared to last year and over 60% when compared to 2019 levels. Most acquisition activity has been focused on Spain and other Southern European markets, and there have been noticeably fewer large portfolio deals. Real estate funds have been hoping to capitalize on situations where debt needs to be refinanced, but to date, any signs of distress or even material reductions in pricing are rare.?

Interest rates are widely thought to have peaked, with the hope that cuts may commence during 2024. These reductions are, however, likely to be relatively small, and interest rates will remain above previous ultra-low levels for some time. We expect transaction activity to pick up during 2024, partly as a result of an improving debt market, but also because there will be pressure to sell from owners facing difficulties refinancing over-leveraged situations and from multi-sector investors who are particularly exposed to the troubled office sector and need to create liquidity through hotel sales. A wave of distress is looking increasingly unlikely, however.

Southern Europe

By Ezio Poinelli , Senior Director – Southern Europe, and Demetris Spanos , Managing Director?

Southern European countries have experienced a particularly positive year, with Spain, Greece, and Italy having almost or totally?recovered to tourist-arrival levels experienced pre-pandemic, while Portugal is already more than 10% higher. ADR increases have been robust and, in some cases, outstanding (especially in the upper segments of the market), with ADR increases for southern European countries’ submarkets ranging from 20–40% over 2019 levels. As a result, hotels enjoyed growing margins and profitability. For Italy in particular, labor costs have not increased in line with the high inflation rate the country is experiencing.?

Hotels are considered a more dynamic commercial asset class given that they are able to more quickly adjust their operating metrics to match the economic cycle. As a result, investors in this region are particularly keen to invest in this sector at this time. On the other side, increasing interest rates and tighter loan parameters imposed by lenders have led to a lower number of transactions than in 2022. Alternative lenders and full-equity investors are now more active in the southern European market.?

Institutional investors and sovereign wealth funds continue to look at South Europe and the Mediterranean as a safe and promising place to invest, undertaking meaningful transactions of portfolios in Spain, luxury assets in Italy, and resorts in Greece. Noteworthy transactions include ADIA’s €1-billion hotel joint venture with Melia; GIC’s investment in a 35% stake in the HIP/Blackstone platform of resorts in the Mediterranean, following the acquisition of a 51% stake in Sani/IKOS resorts in 2022;?PIF Saudi Arabia’s 49% investment in Rocco Forte's hotel group; and Palace Hotels & Resorts’ 100% takeover of Baglioni Hotels & Resorts, among others. Moreover, brand penetration continues to grow, with branded hotel keys representing more than 60% of total supply in Spain, 50% in Portugal, 24% in Greece, and 18% in Italy.?

The outlook for 2024 remains positive. Southern Europe is looking forward to the gradual return of the Chinese market, and U.S. demand appears to be solid and has replaced demand from Russia in many destinations. Thus, inbound demand is expected to grow, especially for resort destinations, while domestic demand could potentially face some issues.?Business travel will probably continue to a full recovery, while the segment may experience a slight ADR correction in some destinations.?

Repositioning or conversions of existing assets will continue, as they are less affected by the challenging lending environment and increasing construction costs.?New (greenfield) developments are expected mainly in countries like Portugal, the Balkans, and the Greek islands, where governments have implemented favorable measures for sustainable developments. Conversely, repositionings and conversions will characterize the markets with higher barriers to entry and greater bureaucracy, like Italy, along with more mature markets, like Spain.?

Refinancing needs, capital expenditure requirements due to the EU’s ESG policies, and generational changes could push some owners in markets largely dominated by family ownership to sell their assets, creating interesting opportunities for new investors. The gap between asking and bidding prices is also expected to gradually reduce.

About the Authors

Charles Human is President of HVS Europe and managing director of the HVS's brokerage arm, HVS Hodges Ward Elliott .?A qualified Chartered Surveyor, he has worked throughout his career in the real estate industry, specialising during the last 26 years in the hotel sector with HVS.?Having worked on projects throughout Europe, Asia and the Middle East, he has a unique knowledge of global hotel markets and hotel concepts. He has led HVS’s activities in the sale, acquisition, and financing of hotels, portfolios and development projects. Charles is a Member of the Royal Institution of Chartered Surveyors. For more information, contact Charles at?[email protected].

Sophie Perret is a Managing Director at the HVS London office. She joined HVS in 2003, following ten years’ operational experience in the hospitality industry in South America and Europe. Originally from Buenos Aires, Argentina, Sophie holds a degree in Hotel Management from Ateneo de Estudios Terciarios, and an MBA from IMHI ( ESSEC Business School , France and 美国康奈尔大学 , USA). Since joining HVS, she has advised on hotel investment projects and related assignments throughout the EMEA region, and is responsible for the development of HVS's business in France and the French-speaking countries. Sophie completed an MSc in Real Estate Investment and Finance at Reading University in 2014. Sophie is also a certified surveyor and a member of the RICS. For further information, please contact Sophie at?[email protected] or +44 20 7878- 7722.

Senior Director of Southern Europe,?Ezio Poinelli has more than 25 years experience in Hospitality, Real Estate, and Leisure Real Estate markets in Europe, Caribbean, Latin America, and South Africa. Before joining HVS, Ezio was Head of Southern Europe at Northcourse Advisory Services (Madrid), the hospitality and real estate consulting arm of Wyndham Worldwide , one of the largest hospitality companies in the world. He was also Head of Expansion & International Development at Compa?ia de Las Islas Occidentales (Canary Islands) and Director - Head of Real Estate and Hospitality at Ernst & Young Financial Business Advisors (Milan). Ezio?is a native of Italy, graduate in Economics and Business Administration, Master in Tourism Economics at Università Bocconi . He is fluent in Italian, Spanish, and English. For more information, contact Ezio at?[email protected].

Demetris Spanos has more than 20 years experience in Hospitality and Leisure Real Estate markets in Europe and the Mediterranean region. Before setting up the Athens office of HVS in 2006, he was the Head of the hospitality team for the South Eastern European region of Ernst & Young Financial Business Advisory (Athens-based) as well as for Arthur Andersen & KPMG for a number of years. He started his career in the hospitality industry back in 1992 as a Managing Director of a major hotel chain in Cyprus. Demetris holds a B.Sc. degree from the University of Patra as well as a M.Sc. from the University of Manchester and an MBA form the Manchester Business School. For more information, contact Demetris at [email protected].

To read the HVS Global article, please visit https://www.hvs.com/article/9814-hvs-global-hotel-industry-2023-recap-and-2024-outlook