Analysis by: Robin Rossmann, Will Anns

Europe hotel performance caused some reason for concern during the first quarter of 2023, but momentum points to healthy performance ahead for gateway cities and secondary markets thanks to recovering corporate demand as well as resilient leisure travel.

Solid overall since the last wave of COVID

Despite slow Q1 performance, hotels showed better yield percentage change than other forms of commercial real estate in Europe, such as office, retail and industrial space. Additionally, when expanding performance out to a 10-month view, top-line and bottom-line metrics trended well in nominal and real (inflation-adjusted) terms. We of course limited the view to 10 months to remove the impact of the last major wave of COVID in early 2022.

May 2022-March 2023

Europe (excl. Turkey) Index to 2019 (nominal) Index to 2019 (real)
RevPAR 113 97
TrevPAR 110 94
GOPPAR 100 94

As winter has passed, performance is once again trending upward with occupancy inching closer to 2019 comparables and ADR driving RevPAR gains as high as +28.6% for the opening of May.

DACH and Benelux have further to go

DACH and Benelux countries lagged even further behind during the first quarter, due to four primary factors:

  • More conservative domestic demand
  • Lack of group recovery, namely in Germany
  • Limited luxury and leisure offerings
  • Limited dollarized travelers

Just a month later, RevPAR on a running 28-day basis was trending upward across those countries in addition to most others in Europe.

Gateway cities lead, but other markets are well-positioned also

Much of Europe’s momentum has been driven by gateway cities, and that trend should continue given recent levels in occupancy on the books (via Forward STAR). Secondary and regional markets are also trending higher for the next 90 days, especially in Italy and Portugal.

Resorts stand out

Resort-heavy markets began outperforming staycation spots early in 2022, and occupancy on the books for the summer months is even higher than this time last year. That is especially true in the Italian Islands with an occupancy on the books (47%) that is 11% higher.

Rate underpinning luxury success

All classes, with the exception of economy, showed lower than pre-pandemic occupancy for the 12 months ending with March 2023. All were up in RevPAR, however, due to gains in ADR. Luxury was the standout with 36% RevPAR growth because of higher room rates.

Looking ahead

While the global economic climate presents plenty of reason for concern, Europe’s hotel industry has plenty of reasons to be optimistic.

Supply growth isn’t much of a concern. The pandemic closed roughly 4.5% of supply, which was offset by 4% growth in new openings. Future growth is only around 1%. Brand conversions have tripled in recent years.

Recessionary risks should be offset by tailwinds from recovering business and group demand as well as resilient leisure travel. Occupancy on the books is even better than last year.

Rate growth remains real. ADR is increasing at levels higher than inflation.