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Published- Jul 2021
Number Of Pages – 120
Europe keeps being one among the biggest travel and hospitality markets worldwide, attracting equal numbers of leisure and business visitors. Approximately 340 new hotels opened in Europe in 2020, with the number of hotel launches only expected to grow further in 2021.
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.
The current unsteady hospitality market is 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,
The hotel industry in Europe market size was estimated at ~EUR 9.2 Billion in 2020. As compared with 2019, revenues declined by ~59.79% in 2020 YOY but the market will also see a steep recovery in 2021 and 2022 led by domestic and leisure tourism. It is only By 2024, that the market will be able to reach pre-covid levels of around ~EUR 34.5 Billion.
The Chained Hotel industry in Europe market size is expected to grow at ~15.16% CAGR between 2021-2026. The demand from domestic travellers in the short term and luxury hotel segment led by leisure trips holds higher growth potential.
Much quicker reopening of hotels especially in high demand bases like that of Germany, United Kingdom, Spain. Cross-border demand has begun to return, propelled largely by drive-to and rail-connected intraregional movement.
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 since 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 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.
Last summer resulted in a high degree of domestic substitution due to prohibitive travel guidelines: as a share of total travel within European destinations, domestic travel jumped from 55% in 2019 to 69% in 2020. Sub-regions witnessed some uplift in domestic tourism this year, however, this would be insufficient to offset any corresponding declines in inbound travel.
Throughout Europe, with overall international tourist arrivals falling by 97 percent in April 2020 over the same month of 2019. Travel to and from countries was restricted as the virus spread, resulting in a drop in arrivals across the region.
International tourist arrivals rose again between July and September, although the total numbers were still far below the figures reported in the previous year. In December 2020, international tourist arrivals in Europe reached roughly six thousand, denoting an 86 percent drop over 2019.
Home to world-famous spots and host to notable international events, France is the leading European travel destination for international tourists. The capital city, Paris, attracted over 16.8 million international sightseers every year.
European travel activity is set to build some momentum moving into the peak summer months due to the gradual easing of restrictions, the ramp-up in vaccinations, and the EU’s recent reopening to more third countries and fully vaccinated travellers from abroad.
Progress in mass vaccination will allow a progressive loosening of restrictions on personal and business activity. Europe is expected to reach herd immunity in the second half of 2021 at its current vaccination speed. 50% of UKs population got vaccinated, for Europe the 30-32% population fully vaccinated till June 2021.
Government relief continues to support hospitality sectors across Europe, albeit varying widely from country to country. The EU’s Digital Green Certificate, planned to be introduced before summer, is expected to support the safe reopening of European travel and tourism to facilitate free and safe movement of citizens.
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. There are many factors which will further influence travel and tourism in the Post Covid era in Europe
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 recognize 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 maximize 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.
The hotel industry in Europe is highly fragmented with many International chains as well as regional players under one roof. However, with just five players accounting for almost ~50% market share in 2020. The growth of the leaders’ portfolios and the rise of some challengers marked the chain supply’s resilience.
Whitbread and Scandic Hotels are the most popular operators in 2020 with a very wide presence. Marriott, Accor and Hilton hotels are scaling up rapidly post COVID-19. Whitbread Hotels registered a positive profit margin, irrespective of the decline in business travel.
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.
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