European Hospitality Sector Outlook 2024

OPTIMISM IN THE HOTEL SECTOR

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BUOYANT REASONS FOR OPTIMISM IN THE HOTEL SECTOR

Despite obvious concerns about the sector's performance going forward, there are several reasons for optimism.

As a result, operators are reporting growth of corporate business in their hotels. This is confirmed by the data from our sample of 93 full-service branded hotels in the 14 key European markets. In Q3 2023, the revenue generated by individual corporate travelers has reached 87% of 2019 levels. Moreover, a growing number of business travelers are incorporating leisure stays before or after business trips ‘blended travel-bleisure’, opting for hotels due to long-distance commuting or working while on vacation ‘workations.’ Marriott's recent report reveals that the share of corporate arrivals to their hotels on Wednesday or Thursday and staying past Saturday increased to 18% in the second quarter, up 5pp from the same period in 2019. A recent Global Business Travel Association (GBTA) report predicts that the business travel industry will surpass 2019 travel levels by 2024, two years earlier than its previous forecast. supply growth in most markets, driven by elevated construction and financing costs. Our research indicates that supply growth in the top 20 largest European markets from the rest of 2023 to 2025 is projected to reach approximately 56,000 rooms, representing a Compound Annual Growth Rate (CAGR) of 2.1%. Dublin, Frankfurt, Vienna and Lisbon are expected to grow most rapidly, while cities like Barcelona, Amsterdam and Milan have minimal hotel construction underway. A positive development for hotel owners and investors is the ongoing restriction on hotel

Although the conversion of outdated office buildings into hotels is emerging, it is unlikely to be a significant supply driver due to its complexity and the limited number of suitable office buildings. Supply is further constrained by authorities cracking down on short-term rentals to prevent the displacement of residents from city centers and safeguard the long-term rental market. Barcelona, for example, has prohibited all short term room rentals in private homes, while cities like London, Paris, Amsterdam, Vienna, and Copenhagen have implemented limits on the number of nights a property can be rented out per year. Austria plans to introduce a similar cap in 2024, and Italy is contemplating nationwide rule tightening.

The labour market remains healthy, and consumers still have some excess savings. The unemployment rate across the euro area remained relatively low. Nominal wages in H1 2023 grew by 4.5% in Europe and by 5.3% in US (important source markets). Plus, according analysis by Financial Times i , there still may be over 25% of excess savings left in the US, and Europeans are reported to hold even more surplus savings ii , albeit partially in illiquid assets. Furthermore, several consumer surveys indicate a continued desire to travel despite the economic challenges. According to the European Travel Commission’s (ETC) latest report, 71% of Europeans choose to either maintain or boost their travel expenditures. The impact of China's re-opening in mid-2023 has so far not been as robust as expected due to their domestic economic challenges. However, as Chinese travelers have not released their “revenge travel” (a journey that had been postponed or canceled during the pandemic but is now being undertaken) to Europe yet, the arrivals are forecasted to increase by 82% in 2024, according to Oxford Economics, generating over 33 million overnights . This is likely to boost the hotel performance in key tourism hotspots for Chinese travelers, such as London, Edinburgh, Rome and Paris. Business travel and in-person conferences are recovering. According to MasterCard’s research,

HOTEL ROOM SUPPLY FORECAST CAGR 2023-2025

7%

5.8%

6%

5%

4.2% 4.2%

3.8%

4%

3.4%

3.0%

3.0%

2.7%

3%

2.5%

2.10%

1.9%

1.7% 1.7% 1.7%

2%

1.4% 1.3%

88% of travel decision-makers believe that business travel is critical for driving their organisation growth.

1.1% 1.1% 1.1% 1.0%

1%

0.5%

0%

Source: C&W Research

8 HOTELS OUTLOOK 2024

THE TIDE IS TURNING AMALGAMATED | 9