War on one side of the continent and a historic recession looming on the other aren't enough to dampen optimism for the European hotel industry.
Hoteliers in the region say travel demand is likely to remain broadly resilient. The midscale segment in particular is poised for success.
Speaking at Alvarez & Marsal’s European Hospitality Investment Conference, Willemijn Geels, vice president of development for Europe at IHG Hotels & Resorts, said 35% of the company's signings are in the midscale segment.
“There is big demand for midscale [hotels] with families, such as for Holiday Inn, Voco and extended stay. These brands are very resilient, and they have proven again that it is an interesting model both from operational and investment viewpoints,” she said.
Costs are increasing in Europe faster than other global regions, but that hasn't been enough to slow down investor interest.
J. Pedro Petiz, managing director of London-based Avington Financial, said buyer and seller expectations are starting to align.
“The bid-ask spread was the big issue two months ago, but things have changed in terms of monetary policy,” he said.
Paris-based Accor has been reporting "gorgeous" operating results through 2022, with Chief Financial Officer and Deputy CEO Jean-Jacques Morin pointing to high demand and pricing power as reasons his company has surpassed pre-pandemic performance.
“The business profile of Accor is today more resilient than ever. … In September and October, we did confirm the return of corporate” bookings in meetings, incentives, conventions and expositions, he said during the company's third-quarter earnings call.
Speaking at the European Hospitality Investment Conference, Accor CEO and Chairman Sébastien Bazin admitted, though, that the hotel industry faces a tough hurdle when it comes to finding capital in 2023.
“Financing will be expensive, and loan to value likely will go down, so if you add all these, [the industry] will likely slow down. One thing that worries me is that pricing is going up,” he said.
For the time being, though, there is no lack of investment appetite in the region.
Mexico's Palace Resorts recently expanded into Italy with the purchase of Baglioni Hotels & Resorts.
“We invested in this great Italian collection for many reasons, starting with the kindness and great execution ability of its staff both in and out of the hotels,” Gibran Chapur, Palace Resorts’ executive vice president, said in a statement.
Portuguese development firm Mercan Properties Group also recently signed a 107.8 million euro deal to build two Hilton-branded hotels in The Algarve.
“The agreement now signed with Hilton is a proof of the development and interest that the city of Lagos has generated,” said Jordi Vilanova, president of Mercan Properties Group.
Spain-based Iberostar Hotels & Resorts also signed a deal to add 70 hotels, including many in Spain, Southern Europe and Northern Africa, into IHG Hotels & Resorts' loyalty platform.
Experts in the region do stress that hoteliers must remain on the top of their game, with Naomi Heaton, CEO and founder of The Other House, telling attendees at the Deloitte European Hotel Industry Conference that hotels must have "a personality."
“Hotels are highly serviced but do not have much personality,” she said. “The younger generation want a sense of place and more service on demand, so we wanted to combine the two and have a product where you can stay for a day, a week, a month or a year. Why limit anyone?”
At the same event, Liia Nõu, CEO of Sweden-based Pandox, said it's imperative that hotel companies communicate with and empower their employees, especially amid lower staffing levels.
“It is lean, and everyone has a big mandate,” she said. “It is professional but informal, and there must be the environment in which to have some fun. We love having dogs and children in the office, and this you can make work. Also, it makes all our great people stay.”
Dermot Crowley, CEO of Irish hotel firm Dalata, also stressed the need to treat employees well.
“Simply, we must treat people better, as you would your son, daughter. It is still seen as a very poor business to be in. We need decency across the board,” he said.
Ultimately, the performance of those employees determines the performance of hotels as investments. Hoteliers at Alvarez & Marsal’s European Hospitality Investment Conference said success in luxury hotels comes back to service.
“Guests appreciate that you show a very strong focus on the individuality of the asset,” Timo Gruenert, CEO of the Oetker Collection, said. "How much authenticity is left once you’ve put [any hotel] within a corporate environment?”
In the U.K., hoteliers remain skeptical of the economic path forward following the country's latest budget announcement.
Kate Nicholls, CEO of the hotel advocacy organization UKHospitality, said she's particularly concerned about a tax holiday on the industry that is set to expire.
“The bill would be an increase of 900 million pounds sterling, on top of the 2.7 billion pounds sterling the sector should be paying in business rates if there was not a holiday,” Nicholls said.