HOTEL INDUSTRY IN EUROPE
Europe keeps being one among the biggest travel and hospitality markets worldwide, attracting equal numbers of leisure and business visitors. Approximately 400 new hotels opened in Europe in 2019, which is expected to remain at a similar level in 2020.
Owing to its leading role in the global tourism market, the hospitality sector is one of the key drivers of the European economy, and European tourism, both in terms of employment as well as of direct contribution to revenue generation in the economy. Together with tourism, the hospitality sector is the 3rd largest socio-economic activity in Europe.
The hotel market in Europe has benefited from a prolonged economic boom in recent years. With developments in globalisation, digitalisation and urbanisation, however, increasing changes can be felt in the hotel industry. Accordingly, the hotel industry is currently facing numerous challenges with regard to customer and work behaviour, sales models and real estate.
For example, there is an increasing trend towards people working independently of particular locations (“footloose service sector industry”) and feeling at home in many places at the same time. Hotels will therefore play a new role in the future – they will become people’s homes away from home.
This means that the current trend is moving away from classic hotels and traditional hotel formats towards options that are more tailored to the needs of customers, beyond just somewhere to sleep for the night.
The hotel industry is increasingly forced to strike a balance between a place of recreation and a workplace. In addition, solutions must be developed that align the digital revolution with increasingly diverse human needs. Hotels that do not react adequately and quickly to changes in future trends will ultimately miss the boat.
However, the fundamentals of the European hotel industry remain strong: key hotel markets such as London, Paris, and Rome are generally supply constrained and continue to show significant demand growth both from within the continent and from overseas visitors.
As a result of these wider economic and tourism trends, the European hotel industry has seen demand-led RevPAR growth in 2019 and managed to maintain profitability levels despite pressure on margins through increasing wage costs.
HOTEL INDUSTRY IN EUROPE MARKET SEGMENTATION
BY CUSTOMER TYPE
BY HOTEL TYPE
● Budget Hotels
● Midscale Hotels
● Upscale & Luxury Hotels
● Boutique Hotels
HOTEL INDUSTRY IN EUROPE MARKET DYNAMICS
Growth in Revenue
As one indicator of hotel demand growth, the EU average is raised by the growth of Eastern European countries such as Poland, Hungary, and Romania, while Western Europe is expecting milder growth in the tourism sector.
The unusually long growth cycle has also resulted in unemployment rates falling to all-time lows across the continent. A critical input for the hotel industry and a measure that is increasingly impacting labour costs, unemployment rates are below 4% in many European markets including the United Kingdom, Germany, and the Netherlands.
As a result of the decade-long low interest rate environment in Europe, institutional investors searching for yield have continued to show increasing interest in European hotels in 2019.
European hotel transaction levels had increased by a considerable range as compared to last year. Leased hotels (the lowest risk operating model primarily preferred by institutional investors) constituted some 40% of transactions, compared to approximately 20% last year. The UK is leading the rankings as the strongest investment market in Europe.
With European income growth outpacing inflation, the increase in purchasing power combined with the continued growth of inbound visitation are likely to support continued demand growth for hotels in the near term.
Rising number of tourists
Rising numbers of tourists throughout Europe Worldwide tourism has increased strongly in recent decades. In Europe, one of the most visited regions in the world, the numbers rise year after year. This can be seen, on the one hand, in the number of international arrivals and, on the other hand, in the travel and tourism industry’s revenue.
In 2018, the direct share of gross domestic product (GDP) that related to the tourism sector was 3.9%. The tourism employment share was 5.4% of the working population throughout Europe, corresponding to 12.1 million people in Europe.
Almost every thirteenth company can therefore be assigned to the tourism sector. All signs point towards the tourism sector continuing to play an important role in the future. Southern Europe in particular is considered a top destination within Europe.
HOTEL INDUSTRY IN EUROPE MARKET BARRIERS
Outbreak of COVID 19
Europe hotels reported occupancy fell 44.6% to 43% in August. ADR dipped 13% to €103.95 ($121.37) and RevPAR decreased 51.8% to €44.69 ($52.18) for the month of August 2020
The absolute occupancy and RevPAR levels were up significantly from July but remained the lowest for any August on record in Europe. Each of the metrics were the highest for the continent since February.
Performance data for the first half of the year compared with 2019 show how dramatic the effect on the hotel sector has been owing to the health crisis situation.
The last six months have seen some unprecedented changes in the hotel sector with dramatic declines in RevPAR, the closure of many hotels and the furloughing of many hotel employees. Government support has been evident for both staff and owners in many countries and, as these measures are eased, it is likely to result in a number of permanent job losses throughout the sector.
The way forward
As hotels ramp up their business, those benefiting from drive-to leisure demand are experiencing encouraging levels of performance. Some, especially those relying on international visitors, will take longer to see satisfactory levels of business return, with those reliant on MICE business taking longer still.
A vaccine will help to accelerate some of this growth but, in any event, it is certain that the hotel sector will eventually produce strong returns again and remain attractive to investors who recognise their longer-term earnings potential.
The sharing economy megatrend, here in the form of co-working, is one of the major market opportunities for the hotel industry. The flexible office space market is booming across Europe, and hotel operators are already capitalising on it. Transforming hotel lobbies into communal workspaces is an innovative way for hotel brands to maximise the earning potential of real estate assets, in turn strengthening their brand amongst guests and the wider community.
More and more business people travel and use hotel rooms, lobbies, cafés and restaurants as places to hold meetings or concentrate on their work. The still relatively new phenomenon of flexible, time-based rental of office workplaces, which includes a community element, has become increasingly commonplace in recent years. In the future, the demand for co-working spaces and work-from-hotel trends is expected to bring about major changes in the hotel industry and foster its quick recovery in times of uncertainty.
Europe hosts a number of key market players which dominate the market scenario. In recent years, New entrants like Airbnb have also done well and managed to stand at par with these mega hotel chains owing to its preferred pricing strategies and easability.
Diverse sources of core and core-plus capital are increasingly considering investment in the hotel market. Private equity groups and other yield-driven investors face more competition from investors with a lower cost of capital and are expected to continue to move into secondary markets such as Portugal and Italy.
The founder of Room2 views the current unsteady market as the perfect time to combine shrewd, long-term investment with leisure and corporate guests’ requirements for hotel brands that prioritize a positive environmental impact.
Room2 believes a gap in the United Kingdom’s lodging market exists for assets that blend the design and feel of hotels with the convenience and flexibility of serviced apartments and aparthotels.Despite—and because—of COVID-19, Room2 sees 2020 as the perfect year in which to expand their idea and brands, promoted as “home-tels,” and move toward reaching national scale.
The French hotel chain Accor has founded the Wojo company in a joint venture with Bouygues, creating a range of co-working facilities. Together, the companies plan to expand around 1,200 new co-working areas in Europe.
Germany and the UK account for nearly 60% of pipeline rooms currently under construction and are expected to absorb additional supply in the medium term due to strong tourism growth forecasts.Hotel construction continues in Europe despite the pandemic, with investors looking to Germany to set the tone for the rest of the continent,
Occupancy rates post COVID19
The ultra-luxury boutique Fauchon l’Hôtel Paris, at about 25% occupancy over the summer, turned a crisis into an opportunity to focus more on its guests,With most hotels in France’s capital closed and resigned to sitting out the summer, ultra-luxury boutique Fauchon l’Hôtel Paris reopened in early July, brought back staff, kept rates steady and managed to offer guests more instead of less, even with only about a quarter of rooms sold.
Guest perception and sensibilities regarding safety, hygiene and social distancing will determine much of these new hotel products and amenities. The question facing investors, developers and hoteliers is what can be financed and open in a landscape of reduced demand and revenue and increased traveler wariness.The health of Germany’s construction and investment landscape is an indicator for all of Europe. Construction is expected to scale back and prices to dip as new products become more lean and digitized.
- Marriott International
- Choice Hotels International
- Hilton Worldwide
- G6 Hospitality LLC
- Extended Stay America
- Wyndham Hotels & Resorts
- InterContinental Hotels Group
- Hyatt Hotels Corporation
- Best Western
THIS REPORT WILL ANSWER FOLLOWING QUESTIONS
- Complete Ongoing Hotel Project List in Europe 2020
- Project List in Design and Planning stage for 2020-2025
- Present Hotel Market 2020 -2025 (Revenue, Occupancy)
- New Hotel Group Entering Europe
- Impact of AirBnB on Hotel industry in Europe
- Market share of major companies