Regarding hotel valuations and performance and the outlook for the year ahead, Europe had a good 2024, with optimism from hoteliers largely unabated.
Even changing geopolitical situations could be beneficial to the European hotel industry with U.S. travelers remaining upbeat about visiting the continent but other countries hesitant to visit the U.S. due to escalations in trade and tariff disputes.
During a March 19 webinar titled “Valuations trends in the European hotel market,” Sophie Perret, managing director at business advisory HVS London, said substantial geopolitical challenges will certainly continue through 2025. If trade wars continue, there likely will be a return of inflationary pressures, but these challenges will see Europe have a new focus on self-reliance, which could reinvigorate demand for the European hotel industry.
“Leisure is still the main driver [to Europe]. Average daily rate is broadly stable, with some significant gains in more peripheral leisure-heavy markets. Inflation has cooled off, payroll pressure remains and energy costs have stabilized,” she said.
A case-by-case basis
Hotel valuations and transaction pricing in Europe are becoming more and more location-specific. Despite some high cost-inflation levels, consumers have been pretty resilient so far and have brushed off concerns and worries, but there's a greater amount of negative news coming out now, and with that comes more uncertainty, said Graeme Smith, managing director at business advisory AlixPartners.
“[The upcoming year’s performance] will be a case-by-case basis. It was a case of a rising tide lifted all boats, but this year will be more location-specific, even asset-specific,” he added.
Perret said the recent decrease in interest rates has been positive for hotel-discount rates.
David Kellett, managing director at Invesco, said Europe is not all smooth sailing despite upbeat sentiment from hoteliers.
“Trading recovery across Europe has been extremely widespread, from Edinburgh, where we have seen incredible [revenue per available room] increases … to Germany, which is underperforming. Layer on that cost pressures, and we could see a continuation of the bifurcation of valuation spread. [In a poll that started the webinar] no one said valuations are to go down, but the macroeconomic pressures are high. It feels like a volatile market,” he said.
Kellett added Germany represents an opportunity, but hotel investors need to be very selective.
The consistent demand for travel is a major reason why hotels remain an attractive asset class to investors, said Kash Gohil, founding partner of Amante Capital.
“And it continues to be more attractive to a wider spread of institutional investors. More capital is chasing hotels, which will keep valuations attractive. Investors want diversified demand and liquidity on the way out, and [Europe’s] strong markets will always offer that,” he said.
Higher demand for Europe
Bettina Graef-Parker, managing director of Aareal Bank, said her bank looks at every hotel-financing deal landing on its desks through the prism of U.S. demand, regardless of trade wars and tariffs.
“What I see is that the European hotel industry is outperforming the American hotel industry in terms of demand. Demand in the U.S. is not back to pre-COVID-19 levels, but U.S. travelers [to Europe] are high in numbers and cause compression,” she said.
She added some markets, notably Canada, are temporarily writing off the U.S. as a travel destination.
Paul Thomas, vice president of international development at Marriott International, said his firm’s notable loyalty program fuels its hotel bookings and network growth decisions. London heads up that growth, followed by Paris. The traditional strong markets remain so, he added.
“London continues to be a very high-profile market, with lots of U.S. travel. Business on the books is good,” he said.
Of the two or three notable portfolio deals seen in the United Kingdom in 2024, which included heavy London hotel components, were stripped away, transaction volumes there might not be as high as the industry might have expected, Smith said.
It was also not a surprise to see that the Mediterranean hotel market is strong, too, Thomas said. Although he noted a coolness in some Spanish markets that appeared overpriced.
“You would not have seen the big private-equity firms going into resorts, but they are,” he said.
The recent wave of franchises across the continent continues to bolster network systems growth, with management agreements that can be converted to franchises remaining an attractive route to that end. However, panelists also said not to write off hotel management agreements, which remain the favored option for upscale and luxury assets.
“There is no reason HMAs shouldn’t work, and a lot of this comes down to if [the parties] see value. … The management agreement is incumbent. The important consideration is getting the right balance between the operator, investor and brand in an HMA,” Thomas said.
He added it should always be reminded that value in bricks and mortar and value in brands are separate issues.
Amante Capital's Gohil said an attractive business model now is one that allows nimbleness to market forces.
Karen Friebe, counsel at law firm Bird & Bird, said if the deal is a boutique hotel in the middle of London, the owner will want more control and often gets it.
Panelists said there remains a slight disconnect in the bid-sell equation, and the most competition centers on larger ticket deals. Invesco’s Kellett said that any current crisis is a continuation of crises that have come and gone in the last 20 years. He addedthe hotel industry deals with them all.
“Short-term volatility creates buying opportunities,” he said.
In numbers
Perret said Europe had a good year in 2024, even if that year was “another year of modest value gains on an average.” Hotel investment volume increased 62% in 2024, which was above the 18-year average in the metric while 2023 and 2022 were not. The strongest hotel value increase in Europe was Athens, which rose 11.8% and was the only market to see a double-digit increase, she added.
The number of European hotel transactions in 2024 increased 8% year over year, and the price per room in those transactions increased 9% above that of 2023 and approximately 5% higher than in 2019. The U.K., with €6.2 billion ($6.7 billion) of transactions, was by far the most liquid market and was responsible for 36% of total European transactions. Of that number, London hotel sales accounted for €3 billion, although Paris saw the highest individual transaction value at €1.4 billion.
“Portfolio transactions doubled year on year but remained 55% below 2019,” Perret said.
Both France and Spain saw transaction volumes of more than €2 billion.
Perret said private equity was the biggest player, responsible for €8.6 billion of transactions, a little higher than hotel owner-operators at €7.8 billion.
“Institutional investors were not sellers during the year,” she said.