Investors Poised to Invest in European Hotels Sector
- Smaller firms set to be the most active in the European hotel market in 2024
- Spain overtakes the UK to become the preferred country for hotel investment
- London maintains top spot at a city level, followed by Madrid and Paris
The European hotel investment market is set to flourish this year, with 70% of investors planning to increase capital allocation to the sector, according to CBRE’s 2024 European Hotel Investor Intentions Survey. A further 25% of respondents intend to maintain their asset allocation levels.
Resilient trading performance, the continued expansion of the travel and tourism sector, and the stabilisation of interest rates have supported renewed investor confidence in the hotel market and, as a result, hotels are expected to have a smaller discount than other real estate sectors.
According to the report, firms with less than $5bn AUM globally expect to be the most active, with over half looking to increase their investment activity. In contrast, only 10% of firms with more than $50bn AUM globally are planning to do the same.
Hotels have always proven a great inflation hedge, but it’s been the related rising interest rates that have dimmed investment activity in 2023. Following the year-end forecasts of rate cuts, investors have been eager to deploy into the sector. They see plenty of value-add opportunities and, fundamentally, the long-term projections for tourism numbers in Europe suggest that projected supply levels will be inadequate to satisfy this demand.
When asked which segment of the market was the most attractive for deploying capital, Upper Upscale and Luxury dominated at 51% and 45% respectively. Both have rebounded quickly following the pandemic and have outperformed the wider hotel market, buoyed by pent-up demand.
At a country level, Spain has surpassed the UK to achieve the top spot, deemed the most attractive destination in Europe for hotel investment. The country saw total hotel investment volumes reach over €4bn in 2023, accounting for the largest proportion of total commercial real estate volumes in Spain at 36%. Italy completed the top three countries and despite experiencing lower trading volumes, hotels accounted for over 20% of the total commercial real estate volume in Italy last year.
Spanish cities also proved popular with respondents. CBRE’s research shows that Madrid has overtaken Paris to become the second most favourable city for hotel investment, with Barcelona also featuring in the top ten. Madrid is proving increasingly attractive to global capital, with notable interest from Latin America. London ranked number one, underpinned by the city’s long-term fundamentals and the highest anticipated levels of inbound travel spend.
Athens also featured in the top ten cities. The city benefitted from a surge in hotel operating performance of over 30% year-on-year in 2023, and the continued strength of Athens and several of Greece’s resort markets now offers investors a meaningful alternative avenue for portfolio growth and diversification.
The report also identified a renewed focus from investors towards urban product, notably in Europe’s gateway cities, with 57% of respondents selecting central business districts as their preferred location. Resorts, a segment that has proven historical resilience to inflation, followed in second place at 36%. The continuation of a post-pandemic resurgence, the onward march of leisure demand and the scarcity of new supply suggest strong prospects for well-located resort properties.
The European hotel market is incredibly dynamic, and our survey findings show a bullish stance from investors in 2024 as they look to capitalise on the region’s growth. Over the past decade, Europe has consistently accounted for more than half of total global international travel and we don’t anticipate this slowing down anytime soon.