When we last shared an overview of the top five U.K. and European hotel investment markets — the U.K., France, Germany, Spain and Italy — the ongoing buyer-seller pricing misalignment, financing challenges and the lack of stock were affecting deal flow in most European countries.

However, the majority of the key markets began to see an uptick in activity by year's end, painting a more positive picture for 2024. Overall, almost €13 billion ($14.2 billion) worth of hotel assets were transacted across Europe in 2023, a 15% decline on 2022 levels. 

Nonetheless, hotels have emerged as a strong, inflation-hedging asset class in comparison to other commercial real estate, such as office or retail, and an increasing number of investors are expected to redirect capital toward hotels in the year ahead. 

There were signs of rebalancing across the U.K. hotel sector in 2023, with trading performance maintaining its upward, albeit decelerating trajectory. Plateauing interest rates and inflation levels improved sentiment, providing the market with some much-needed stability. 

Despite finishing the year at an historic low level, transaction volumes progressively improved from the summer onwards and resulted in a stronger second half, in line with our midyear market predictions. In addition, the bid-ask spread between sellers seeking value for strong trading performance and buyers having to factor increased debt costs into their pricing finally started narrowing. This translated into a 4.1% drop in Christie & Co's hotel price index for 2023. 

Our brokerage team experienced a significant 81% increase in hotel deals agreed between the first and second half of 2023, which will positively affect transactional volumes during 2024. Furthermore, a progressive uptick in distressed cases has emerged and should lead to more consensual and forced sales during the course of this year.

France emerged as one of the most active European hotel investment markets, contributing a quarter of the total volume in 2023. The Rugby World Cup provided a welcome boost to trading; and with the 2024 Olympic Games set to take place over the summer, many expect investment volumes for the year ahead to ride on the heels of this upward trajectory.

Among the high volume of deals in 2023, two Parisian transactions were particularly notable; the sale of the Hotel California for €125 million and the Westin Paris Vendôme for €650 million. Christie & Co’s French Hotel team also experienced a strong year, completing 23 transactions and launching to market circa 70 hotels, creating a strong deals pipeline for the next 12 months.  

Despite a slow start to the year, 2023 turned out to be a remarkable year for the Spanish hotel industry with demand levels back to pre-pandemic standards and the most active transactional markets with France.

This recovery was accompanied by record-breaking ADRs in most destinations. Several Spanish hotel groups reported record results, underlining the sector's ability to convert a strong top line into a healthy bottom line. Hotel investment in Spain reached a total volume of €4 billion in 2023, exceeding €3 billion for the third consecutive year and marking the second-best year ever, a figure only surpassed in 2018 due, among other transactions, to the sale of the Hispania portfolio. 

Transactions predominantly took place in primary destinations, encompassing urban and resort locations, with record-breaking prices per room. The market saw several notable trophy deals, and the emergence of new players from the Middle East and Asia is creating a new investment landscape with different dynamics.  

The German hotel investment market was significantly influenced by 2023’s macroeconomic and geopolitical events. In the five years preceding the COVID-19 pandemic, the average transaction volume in Germany stood at approximately €4 billion to €5 billion. However, during and post-COVID, this figure plummeted €2 billion to €3 billion, reaching a new low of about €1.5 billion in 2023.  

Interestingly, the scarcity of transactions did not stem from a lack of interested buyers or sellers, nor does it reflect a weak hotel market with low key performance indicators. In reality, German hotels managed to achieve double-digit RevPAR growth rates in 2023, following a remarkable increase of over 100% in 2022 compared to 2021.  

The largest barrier was the gap between sellers' and buyers' price expectations. However, we anticipate that by the end of the first quarter and into the second quarter of 2024, the hotel investment market will regain momentum. This is expected for two reasons. Firstly, there should be more clarity on the economic trajectory; and secondly, deal parties are likely to narrow the bid-ask gap. 

Investment volumes in Italy are highly volatile from year to year, but this destination is firmly on the radar of many opportunistic investors seeking high returns. This fragmented market, with many underinvested independent hotels and limited brand penetration, offers significant value for astute investors at attractive entry pricing. We expect more activity in the coming months to make the headlines.

And 2024 promises to bring more opportunities. There has already been a definite call for action from owners, investors and lenders; and more stock will come to market in the coming months, satisfying the appetite of frustrated buyers. Lowering inflation, coupled with stabilizing interest rates and progressive base rate cuts on the horizon, has given more impetus to the market.

Additionally, distressed activity is picking up, notably in the U.K.; and many owners will have to refinance during the year, both of which should signal a good vintage for hotel transactions in 2024.

Carine Bonnejean is managing director of hotels at Christie & Co., based in London.

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