Europe has emerged as a frontrunner in the recovery of global hotel markets, according to JLL Hotels & Hospitality group’s latest global hotels investment outlook.
Despite geopolitical and macroeconomic headwinds clouding the back half of 2022, Europe welcomed almost 70% of the world’s travellers.
The region recovered more quickly in the re-emergence of international travel and opportunities for cross border hotel investment, with hotel occupancy reaching 89% relative to 2019 levels.
According to the research, accelerated lodging demand resulted in RevPAR reaching or exceeding 2019 levels across Europe.
'With the US being open for business and travellers wanting to move again, Europe has been a significant beneficiary,' said Will Duffey, head of EMEA hotels and hospitality capital markets.
'On top of that we have seen post-pandemic "revenge" spending from Europeans. There are also growing numbers of Middle Eastern travellers and we are keen to see how the movement of Chinese tourists this year will boost Europe still further.'
While insufficient flight capacity and labour shortages impacted the pace at which international travel recovered, Mediterranean resorts destinations have taken a lead in the recovery, with some of the most popular tourist resort spots in the world, including Spain, Italy, Portugal, and Greece bouncing back strongly.
'Resorts are in favour with the investor community and with consumers alike. I suspect that wellness will be a growing theme, with brands likely to increasingly emphasise their offerings and amenities in this area,' Duffey said.
Pent-up demand, lifting of travel restrictions during the summer months of 2022, and favourable exchange rates relative to the Euro all drove faster recovery in these destinations.
Duffey added: 'Despite the macro-economic downturn, ongoing geopolitical tensions and supply chain disruptions that characterised much of 2022, the European lodging industry has remained resilient.
'Looking ahead to 2023, capital market dislocation and rising debt costs will likely be a concern for investors, however those that remain nimble will be poised to acquire quality assets and grow their portfolios.'
This year's investment trends
The report suggests that even with global inflation and geopolitical tensions, investors are expected to deploy capital across a range of lodging verticals this year.
As the first quarter of 2023 reaches its close, the report suggested that investors should bear in mind the continued disconnect between accelerating hotel fundamental performance and macroeconomic headwinds.
Despite global economic volatility, labour shortages and supply chain disruptions, the global lodging industry was largely boosted by leisure demand and notable international tourism events in 2022.
Unlike other property sectors, hotels can modify their selling rates daily to account for rising inflation; as such, global hotel ADR exceeded global inflation by 70 basis points in 2022.
With demand showing no signs of slowing hotel owners can likely push rates even further in some markets with the goal of increasing profitability.
'The luxury and lifestyle market and the limited-service offer is looking resilient, even in recession-hit regions,' Duffey said.
'The strength of luxury reflects the fact that there is still a lot of disposable income in the system people are ready to pay for experiences.
'At the other end of the market, the price point of limited-service structures makes them appealing for corporate and leisure travellers.
'The sub-sector which is likely to suffer is mid-market hotel groups who are carrying high operating costs and structures and are not necessarily getting a high enough rate to cover these costs.’
Resilient outlook
An estimated 700 million tourists travelled during the first three quarters of 2022, an increase of 133% compared to the same period in 2021, noted JLL. As travel restrictions continue to ease and international borders reopen, a continued increase in travel demand is likely, the report said.
With the reopening of borders, European cross border investment opportunities are expected to pick up in 2023, with Europe already gaining $6.85 bn in capital market inflows in 2022. Asian and Middle Eastern investors are expected to focus on gateway markets in Europe, such as London and Paris.
Noted Duffey: ‘Paris has already bounced back, and that’s without the upcoming Rugby World Cup and the Olympic Games of 2024.’
Other highly sought-after markets in Europe include Zurich, Geneva, Milan, and Rome. In Asia, European investors are more likely to deploy capital into Japan, Singapore, Melbourne, and Sydney.
The report stressed the importance of redefining hospitality with a renewed focus on owning the entire travel experience.
'A focus on work-life balance and authentic travel experiences has led to the emergence of new lodging demand segments as travellers look to spend time in new places. This has created opportunities for investors and hotel brands to expand their offerings into new verticals, such as alternative accommodations, to increase their share of the travel experience,' the research added.
JLL’s Hotels & Hospitality Group said it had completed more transactions than any other hotels and hospitality real estate advisor over the last five years, totalling $83 bn worldwide.
The group’s 350-strong global team in over twenty countries also closed more than 7,350 advisory, valuation and asset management assignments.
