Investment in the European hospitality sector has turned a corner, says a new report.
Total hotel transaction volumes across Europe and the UK in 2023 totalled €14.78 billion, down 18% year-on-year. But there are some reassuring signs that suggest activity has already bottomed out, says Savills in its latest European Hospitality Spotlight Report.
Consecutive quarterly investment increases
In the second half of 2023, investment activity recorded consecutive quarterly increases. Regional volumes rose 31% quarter on quarter in Quarter 3. This is notable as activity in Q3 is usually subdued.
Although second-half volumes still experienced a year-on-year decline, this was only 2.4% down and was a marked improvement on the 32% year-on-year decline in the first half of the year.
The biggest investment market in 2023 was Spain, at €4.06 billion, including corporate deals. While this was down 15% on 2022 volumes, sentiment remains robust. There is continued appetite for leisure-focused assets with a repositioning angle, focused on luxury and upper-upscale categories, which is something Savills is seeing in other Southern European markets, including Portugal and Italy.
Last year, the UK recorded €2.62 billion of hotel transactions. Volumes were down 24% (based on local currency) but there was a significant 212% annual increase in Q4 2023, helped by a reduction in borrowing costs and improved investor sentiment. With more than €1 billion of UK hotel assets already transacted this year, full-year 2024 volumes are expected to surpass 2023 levels, according to Savills.
Ultra-luxury demand set to rise
Demand for luxury stays has been strong following the pandemic, with Average Daily Rates ADRs rising by up to 38% in London.
Attempting to capitalise on this strong demand, luxury brands have been expanding across Europe, with new locations being secured on an asset-light, management contract basis.
Savills’ forecasts using data from luxury hotel providers, including the Mandarin Oriental, Four Seasons and Belmond, show from 2023-2028, there is to be an expected 49.3% increase in existing luxury hotel stock in Europe, equating to around 4,000 new rooms coming to market.
