Despite a range of disruptions to European tourism in recent years, visitation grew by around 1.5% in 2016 and is forecast to grow by another 2% in 2017, with demand for hotels outpacing supply, according to Christie & Co.
A study from the group identified a number of markets ripe for investment, but warned that failure to invest in infrastructure could put the region’s growth at risk.
Europe remained the key source for European destinations with domestic and other European travellers accounting for almost 90% of demand. The established feeder markets including the US, Canada, Japan and Australia continued to generate visitation growth for the European market. India and China were expected to experience healthy GDP growth over the next five years and both have populations over four times the US, with affluence continuing to rise.
Christie & Co pointed to Iceland, Poland, Denmark, Portugal and Sweden as the markets that currently had a low level of brand penetration and represented the best opportunities for hotel groups.
The group’s European Travel Trends and Hotel Investments Hot Spots study identified two opportunities for increasing the value of visitation in the European market. Firstly, that Spain and Greece lagged behind Western and Northern Europe in terms of value of visitation per international arrival. The group said it saw “a real opportunity to boost the value of visitation by improving the quality of the hotel stock”.
Secondly, that there were good brand opportunities across the European market; as the hotel stock in the majority of European markets remains currently heavily unbranded and in need of investment.
Anna Eck and Marine Duchesne from the hotels consultancy team at Christie & Co and the report’s authors, said: “The findings of the report show quite clearly that Europe as a destination remains extremely popular and there is huge opportunity for international brands to grow in the region. Markets such as Iceland, Poland, Denmark, Portugal and Sweden provide options for hotel chains whilst Ireland, Spain, Portugal, Poland and Sweden would be ideal for opportunistic investors willing to take more risk. These markets are all expected to achieve strong revpar increases in the coming years as well as demand growth in excess of supply.”
Across the countries analysed, Italy recorded the largest supply in hotel rooms, with over 2.2 million hotel beds. This was followed by Spain and Germany with 1.9 million and 1.8 million hotel beds respectively, and France (1.3 million) and the UK (1.0 million) trailing further behind. Despite a large base of existing supply, Spain recorded a 1.6% 10-year CAGR, with the majority of this supply added in Madrid, Barcelona and the Balearic Islands.
The group warned that the region’s strength could also be its weakness, commenting: “Accessibility is a key driver for tourism and Europe’s attractiveness has historically been supported by the development of major airport hubs, connecting the continent globally and facilitating passenger movements internally.
“Can European airports meet growing passenger demand? Overall, capacity constraints rather than lack of demand might impact growth potential for Europe.”
Europe’s main competitor for arrivals was the Asia & Pacific region – also fast becoming a
leading source of outbound travel. A number of Asian countries are improving their tourism offer
and experiencing strong economic growth, resulting in an impressive double-digit growth forecast
for international visitation by 2030. Behind this forecast was the expectation that the emerging
middle class in markets such as China, India and South Korea will boost travel within the Asia &
Pacific region, as rising disposable incomes initially lead to short-haul, rather than long-haul trips.
The repot was released as CBRE reported its quarterly transactions figures for Europe, which found that the overall European hotel investment volume was up 33% year-on-year for the third quarter. This contributed to a 16% year-on-year increase year-to-date, with the deal volume topping EUR14bn.
The size of the Spanish hotel investment market more than doubled in the first three quarters of 2017, with transaction volumes increasing by 112% year-on-year. The UK saw the highest actual investment volume at almost EUR5bn so far in 2017. Both markets’ deal volumes were already ahead of their respective full-year 2016 volumes.
HA Perspective [by Katherine Doggrell]: When asked at the launch of Christie & Co’s report whether he was able to call the top of the market, Cody Bradshaw, managing director, head of European hotels – Starwood Capital Group, was not tempted. Bradshaw pointed to the strength of demand in Europe – with a sharp intake of breath over how Europe feeds Europe – also drawing attention to the investment in infrastructure which will feed this.
Bradshaw also acknowledged that, with hotels failing to meet demand, alternative providers of accommodation such as Airbnb were likely to pick up the slack. Thomas Emanuel, director of business development for STR, pointed to a study the group produced indicating that sharing stays tended towards around a week, not treading too closely on hotels’ toes, but this is likely to evolve to meet demand.
For the hotels already farming Europe, the message was that more M&A was on the way. With more deals expected as Christmas approaches, the transactions market at least is buoyant.