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European Hotels Benefiting From High Leisure Rates, More International Travelers

High Rates, Demand Offsetting Some Inflation Woes
Hotel News Now
June 1, 2023 | 12:57 P.M.

BERLIN — Hotel performance across Europe got off to a shaky start in 2023 but has turned around in recent weeks.

Strong leisure demand for fair-weather destinations plus stronger business-transient and group business are offsetting some of the persistent obstacles such as high energy costs, rising interest rates and inflation.

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Southern Europe continues to outperform the region, said STR Managing Director Robin Rossmann, but the United Kingdom and Ireland have made strong comebacks in recent weeks, and even the laggard Central European countries of Germany, Austria and Switzerland have shown some improvement in hotel demand. STR is the hotel analytics division of CoStar Group.

“When you look at business on the books now … it is pretty much universally better than it was same time last year,” Rossmann said in a video interview with Hotel News Now during the International Hospitality Investment Forum. “That gives real confidence that even though there’s still a lot of risks out there that would be very easy to be concerned about … [people are] putting their wallet where their heart is because they all want to go out and travel again, and we’re seeing stronger demand.”

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Challenges still remain. Germany officially announced it was in recession in mid-May, and in the U.K., many hoteliers are stuck in high-cost energy contracts despite the fact that costs are falling overall.

Rossmann said highlights for European hoteliers include the increasing pace and volume of business-transient and group demand, as well as stronger performance in gateway cities.

Gauging business travel by day-of-week booking trends, Rossmann said occupancy is getting very close to 2019 levels. While group demand was only 40% of 2019 levels at the start of 2023, he said forward bookings show “there is a real step change this year and certainly into next year.”

Gateway cities in Europe fell hardest during the pandemic, as they did globally, due largely to a reliance on international inbound travel, but Rossmann said, “Gateway cities for the most part have caught up across Europe with the regional markets.”

Hotels in gateway cities also are still able to command rates well above their counterparts in regional markets, Rossmann said, and as such are “much better able to offset the inflation we’re seeing on the bottom line, so those look like the outperforming markets going forward.”

Rossmann said there’s still room for hotel occupancy recovery across Europe, which still sits 10 percentage points below 2019 levels but gained some ground in late March and April.

While occupancy may recover and surpass 2019 levels in some markets in time, he said it won’t necessarily go above and beyond, in part because of the supply equation in the region.

“What we’ve seen across Europe is maybe 4% to 5% of rooms close as a result of COVID, about double what we saw in the Great Recession,” he said. “But that has been offset by rooms openings of around 4% and another 1% will open this year, so we’re broadly in a stable supply environment, with demand getting back to 2019 levels and maybe more. But even if it doesn’t do more, we have the benefit of the rate growth that’s come through.”

Rossmann said Europe still has plenty of demand runway, and that helps him stay optimistic despite worries over larger economic softening or a recession.

“We’ve had a lot of demand coming across the Atlantic from the U.S. and that’s likely to carry through the summer months, to maybe recede as the dollar weakens, but I think that’ll be offset by recovering demand from Asia and recovering group demand,” he said.

For more from Rossmann on these topics, plus his outlook for the luxury segment and how hotels as an asset class compare in performance to other real estate asset classes, watch the video above.

Read more news on Hotel News Now.