As a result, the trading performance across Europe has still not returned to its pre-2000 levels. The graph below confirms that revPAR is still €4 adrift. This contrasts sharply with Asia Pacific, which surpassed 2000 levels during the first quarter of 2004, and would have recovered sooner without the SARS outbreak in mid-2003. The Middle East also exceeded 2000 trading levels early in 2004, following Saddam Hussein�s arrest in December 2003. 

Regional Variations

Hotel performance across the region has reflected diverse economic conditions, particularly those that distinguish euro zone and non-euro zone countries. Although, revPAR across Europe as a whole grew 3.6% for the first nine months of the year, performance in the euro zone only managed a 1.3% rise. Here, average room rates fell 1.0%, reflecting the tough economic conditions, particularly in Germany. In contrast, those outside the euro zone saw revPAR move ahead by 3.5%. 

As can be seen in the table below, it�s the new EU members that have been driving above average revPAR growth for non-euro zone countries. These new member countries - Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia � have enjoyed increased occupancy driven by a plethora of low-cost airlines. As more international visitors poured in, hoteliers took the opportunity to increase average room rates, achieving 4.7% growth during the first nine months of 2005. 

Regional Winners and Losers

Given that most EU newcomers are in Central and Eastern Europe, it is hardly surprising that of the five sub-regions that comprise Europe, as defined by the World Tourism Organisation, Central and Eastern Europe is one of the best performing areas. Here, revPAR has gone up by 11.9%. 

In last year�s publication, we compared performance between East and Western Europe, revealing how average room rates in the East were among the regions lowest, even though revPAR growth was significantly higher. Twelve months later and the picture is changing, with the differential in average room rates narrowing. Average room rates in Central and Eastern Europe were just €7 behind those in Western Europe year-to-September, and just €10 a drift for the region as a whole. As a result of significant growth in tourism, occupancy levels are 70% - virtually on a par with those in Northern Europe. This has driven double-digit revPAR growth, so that revPAR levels in Central and Eastern Europe now match Southern Europe and are slightly higher than in Western Europe.

The best performing region was, however, the East Mediterranean, which comprises Cyprus, Turkey and Israel. Here, revPAR grew a staggering 29.5% fuelled by equal improvements in both occupancy and average room rates. After years of terrorism threats and political uncertainty, which had an obvious impact on tourism, Turkey and Israel are enjoying an increase in international visitor arrivals. Peace initiatives have made Israel a credible choice for more people, particularly Europeans from Germany, Italy and Spain. Israel�s Ministry of Tourism estimates that international visitor arrivals have increased 27% during the first nine months of the year, and the country should reach its goal of 2m visitors by year end. Interestingly, more than 50% of visitor arrivals are Jewish and are visiting the country to meet with friends and relatives. 

The weakest performers, with a 1.5% fall in revPAR are in Southern Europe - the only region to report such a decline. Although occupancy has increased by 2.2%, average room rates have tumbled 3.6% to reach €102. The reason for this is the inclusion of Greece and Portugal in figures for Southern Europe, as both countries are being measured against their exceptional performances in 2004. In Athens, Olympic fever pushed average room rates up 261% in August 2004, while Lisbon enjoyed a 67% increase in average room rates through hosting the Euro 2004 Football Championships in June.

In addition, Barcelona and Madrid are two of only a handful of cities across Europe that have seen average room rates decline in 2005. Both cities are still suffering from oversupply and with several new openings planned, trading conditions will stay tough. Across the whole country, average room rates have fallen 1.4% during the nine months to September. Spanish hoteliers will be able to empathise with their neighbours, as average room rates in Italy have fallen by 2.0% as rates have been discounted to stimulate domestic demand, particularly in secondary and tertiary destinations.

Western Europe, which encompasses many of the euro zone countries, tends to mirror the euro zone generally and Germany, the powerhouse of Europe, particularly impacts the region�s performance. As Germany is the largest outbound tourism market in the world, with around 50m people travelling every year, anything that hits German outbound travel patterns will have a knock- on effect globally. During 2004, revPAR across Germany grew 4.7% but the hotel industry faltered in the first half of 2005, with double-digit revPAR declines in March and May. Since July, revPAR growth has returned, but the 2.1% increase for the quarter is not that impressive. One reason for the slow performance is the biennial nature of fairs held in the country, which means large events - such as the Drupa printing convention -held in 2004 were not repeated this year.

Within Germany, Berlin struggles from oversupply and � like Athens, Barcelona and Lisbon � has seen revPAR fall between January and September. Already this year, the market has seen the opening of the 251-room Express by Holiday Inn Berlin Anhalter Bahnhof; the 274-room Dorint Novotel Berlin am Tiergarten; the 267-room Courtyard Berlin City Centre and the 505-room Maritim, with more new hotels to come. 

This spurt of activity is due to the FIFA World Cup Football Championships, which will be staged during the summer 2006, when at least 3m fans will attend one or more of the 64 matches being held at 12 venues across the country. 

With domestic demand accounting for 87% of current overnight hotel accommodation, the German government regards hosting the World Cup as a way to widen the country�s appeal and attract more lucrative international visitors. This plan is being supported with improved rail and road infrastructure, and new air routes, including direct flights between Hamburg and Newark; and between Hamburg and Dubai. Budget operator easyJet has also added routes from a number of UK locations to Berlin, Dortmund and Munich. 

The highest occupancy and average room rates of all Europe�s sub-regions can be found in Northern Europe, which primarily comprises the UK and the Nordic region. This strong performance has been driven mainly by the stellar trading conditions of the UK market, where occupancy is running at 72%. However, all Nordic countries have experienced significant growth in average room rates during the first nine months of the year, up 6.8%. 

The capital cities of all the Nordic countries, with the exception of Stockholm, have reported average rate growth in excess of 9% when measured in euros, although the picture is not so good in local currency. Helsinki stands out with revPAR up 9.1% for the first nine months of the year, enjoying an exceptional August. The city staged the Athletics World Championships for the second time, becoming the only city to have done so, and reaped the rewards. With more than 300,000 people attending the event and hotel accommodation in short supply, hoteliers achieved a 42% premium on the average room rate, resulting in revPAR increasing from €69 to €99, a staggering 44% growth. 

As we enter the last quarter of the year, short-term prospects for the hotel industry across Europe look sound. While the euro-US dollar exchange rate and modest GDP expectations mean revPAR growth will be steady rather than substantial, we expect to see the East-West divide continue. Many of the former Eastern bloc countries will continue to deliver above average revPAR growth - in many cases double-digit � but this will be in sharp contrast to their Western European neighbours, where the future looks more subdued.

European Performance Review � Transaction Bonanza
The full European Performance Review will be released on the 22 November to coincide with the start of the European Hotel Investment Conference in London hosted by Deloitte. Keep your eyes peeled on the 22 November for your complimentary copy. Non-survey participants can pre-order their copy of the European performance review at a special rate, simply contact Tina Wanstall on +44 20 7007 3974 or email [email protected] to find out more.

Tina Wanstall
HotelBenchmark
+44 (0) 20 7007 0981
Email: [email protected]