European Hospitality Sector Outlook 2024 - Extended Version

WHAT AND WHERE?

Leisure has been the primary leader of the recovery and investors will continue to hunt for opportunities in this sector, especially with a value-add angle. Private equity funds, family offices and owner-operators are expanding their search for assets from Iberia, France and Italy towards Greece and also Croatia that recently introduced Euro, thus removing currency risk for cross border capital. In addition to resorts, travel demand is growing rapidly in primary and second-tier urban markets with a strong cultural offering, allowing for a longer season and more balanced mix of source markets. This is likely to attract investors who want to benefit from the long-term growth of leisure travel but want to avoid the challenges with seasonality and the complex operation of resorts. The pressure on wages, lack of staff and rising operating cost is deepening investor interest into the extended stay sector that is less labour intensive, demonstrated strong resiliency during the pandemic and has long-term prospects underpinned by remote working trends and overall shift of our society towards a mobile lifestyle. On the other side of the spectrum, luxury hotels have proven to be a very effective hedge against inflation and economic downturns with the additional benefit of owning a distinctive physical asset. According to our recent survey, 85% of operators are optimistic or very optimistic about performance of luxury hotels in Europe and investors buy into this story with their capital.

"

For those looking for underdogs, the pandemic put a “hard-to-wash stain” on airport hotels, that used to be popular among investors. However, with passenger movements surpassing pre-pandemic levels, airport hotels are back in business and may present good opportunities. Last but not least, ESG is a major challenge for the whole real estate industry and hotels are no exception. As operational real estate, there are major opportunities for investors to deploy not only capital but also operational expertise to substantially reduce utility costs and improve the sustainability credentials of the hotels to gain a competitive advantage as corporate and transient guests increasingly demand it. Our research suggests the potential to increase the value of the asset by approximately 10% through a combination of improved income and yield compression. But the window of opportunity is closing fast as investors are only willing to pay premiums when there is limited ESG-compliant stock. The regulations are increasing, and many hotels are at risk of becoming stranded. While institutional buyers will look for assets with the highest ESG credentials, there are value-add investors that are keen to acquire hotels in need of major retrofit but with appropriate “brown” discounts.

Our research suggests that investment in ESG has the potential to increase the value of the hotel by approximately 10% through a combination of improved income and yield compression.

20 HOTELS OUTLOOK 2024

THE TIDE IS TURNING AMALGAMATED | 21