European Hospitality Sector Outlook 2024

SAILING INTO 2024

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A YEAR SET TO CHART NEW WATERS

Lastly, ESG poses a significant challenge for the entire real estate sector, including hotels. As operational real estate, hotels offer investors substantial opportunities not only to deploy capital but also operational expertise. This can lead to significant reductions in utility costs and improvements in sustainability, providing a competitive edge as corporate and transient guests increasingly prioritise these aspects. Our research indicates the potential to enhance asset value by approximately 10%, achieved through a combination of improved income and yield compression. However, the window of opportunity is closing rapidly, as investors are now willing to pay premiums only for rare attributes. With increasing regulations, many hotels are at risk of becoming stranded. While institutional buyers prioritise assets with the highest ESG credentials, value-add investors are interested in acquiring hotels requiring significant retrofitting but with appropriate "brown" discounts.

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. In addition to resorts, the travel demand is growing rapidly in primary and second-tier urban markets with strong cultural offerings, allowing for 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 also want to avoid the challenges with seasonality and the complex operation of resorts. The pressure on wages, lack of staff, and rising operating costs is deepening investor interest into the extended stay sector that is less labour-intensive. On the other side of the spectrum, luxury hotels have proven to be an effective hedge against inflation and economic downturns with the additional benefit of owning a distinctive physical asset. For those seeking opportunities among the overlooked subsectors, the pandemic cast a lasting shadow on airport hotels, once highly favored by investors. However, with passenger movements now exceeding pre-pandemic levels, airport hotels are recovering and could offer promising investment prospects.

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.

10 HOTELS OUTLOOK 2024

THE TIDE IS TURNING AMALGAMATED | 11