Europe's hotel and tourism sector is showing signs of recovery, spurred by the release of pent-up consumer demand, according to CBRE’s 2023 European mid-year outlook.
The revival of intra-regional tourism, coupled with significantly more visitors from the U.S. — the primary source of long-haul tourism — has underpinned solid growth and may portend foreign arrivals returning to pre-pandemic levels by mid-2024.
While the recovery of air traffic volume initially lagged the surge in consumer demand during the first few months of the year, recent data reveal a robust recovery in flight capacity to Europe, especially during the summer vacation season.
Europe has maintained its status as a favored destination for travelers worldwide, particularly in key coastal and gateway cities. Europe has ac-counted for more than half of total global international travel for the last decade. Tourism Economics data reveal that London holds top spot in terms of international arrivals, followed by Paris, Barcelona, Istanbul, and Amsterdam. With these markets projected to sustain their growth trajectory, they are forecasted to collectively surpass 50 million arrivals in 2024, a number exceeding those recorded in 2019. This continued strong growth reflects the priority consumers place on travel experiences, even in the face of higher travel expenses and constrained budgets.
Nearly all European markets reported higher ADR and RevPAR in 2023, especially in the luxury and upscale segment. France, Italy, Ireland and Greece outperformed, achieving ADRs that exceeded 2019 levels by more than 30%. ADRs in the Netherlands, Spain, Belgium, Poland, and the United Kingdom surpassed 2019 levels by over 20%.
While hotel occupancy rates continue to increase gradually, several key European markets are still below 2019 levels. In markets like Frankfurt, Helsinki and Istanbul, a slight improvement in occupancy rates could potentially support RevPAR growth in 2024.
CBRE expects ADRs to continue rising in key gateway cities in H1 2024, albeit at a more modest pace. This steady growth momentum should counterbalance rising operational costs. Paris should continue to be a standout, with hotel trading metrics that are well ahead of other cities in the region. The 2023 Rugby World Cup has spurred a surge in both demand and room rates, while the 2024 Summer Olympics should provide additional impetus.
Rising interest rates and higher financing costs have tempered hotel transaction activity across most European markets in 2023. France has defied this trend, however, registering a 40% y-o-y increase in hotel transaction volume in H1 2023 on the back of strong tourism demand and positive investor sentiment in the run-up to the Olympics.
Limited yield expansion and costlier debt finance should continue to con-strain hotel investment activity until 2024. Investors are waiting for concrete signs that interest rates have peaked.