Extended stay
While traditional hotels continue to thrive, extended-stay properties are quickly gaining traction among investors. “The extended-stay sector is really interesting because you can obtain similar room rates to hotels, but with lower operating costs. The potential for increased profitability is incredibly strong,” says Will Duffey, head of EMEA Hotels & Hospitality Capital Markets at JLL.
This fragmented market offers significant upside for investors looking to build scale. With Duffey noting that this fragmentation across Europe presents a huge opportunity to consolidate and create more consistency.
“If you can expand the extended-stay product with a consistent offering across multiple countries, the returns are substantial,” Duffey explains.
The sector is also benefiting from changing consumer behaviour, with more people seeking longer stays and greater flexibility, especially in the wake of the pandemic.
Midscale and lifestyle
For many developers, midscale properties are becoming increasingly attractive. “The midscale market offers more efficient development. Developers get more on a per-square-meter basis, which makes it a more attractive option compared to luxury properties,” explains Tobias Reinecke, head of investment & development EMEA at Choice Hotels.
With rising construction costs and the complexities of luxury hotel development, midscale and lifestyle offer an attractive balance of profitability and efficiency.
“When you’re developing a luxury property, you’re talking about double the room sizes, more high-end facilities, and significant FF&E costs,” Reinecke continues. “With midscale, you can develop more efficiently, which is why investors are increasingly focusing on this sector.”
This shift is also reflected in the investor landscape, with institutional investors historically drawn to these properties - attracted by stable, long-term leases and relatively lower-risk profiles - increasingly joined by private equity players.
Reinecke adds: “With the increment in lifestyle rents, there’s also - and this is more on the platform side - private equity looking to get into that space as well, particularly with cool and aspirational brands with traditional lease structures. That’s where private equity sees value, as they can build platforms around these brands.”
Private equity
When it comes to capital flows in the region, Duffey notes opportunistic private equity groups are continuing to dominate the market. “Those who missed out last year will be eager to join their peers. I think that private equity is going to be a dominant buyer within the space again.”
But it’s not just private equity making moves. Duffey also highlights the re-entry of core capital into the hospitality space, albeit slowly.
Additionally, he sees a shift in the role of owner-operators, particularly those with strong balance sheets. "Owner-operators are seeing a real opportunity to buy assets in key strategic locations where they can establish their brand presence,” he says.
And Limestone Capital’s acquisition of Nobu Hotel London Shoreditch is a perfect illustration of how owner-operators are seeking to secure high-quality assets and expand their portfolios.
Where?
While opportunities abound, there are also significant challenges. Kash Gohil, founding partner at Amante Capital notes the geopolitical risks and the overall lack of liquidity in some key European markets, particularly Germany. “In markets like Germany, transactions have been sparse, and performance remains sluggish,” he observes.
Optimistically though, Duffey notes a positive uptick in 2024, an improvement he hopes should continue through 2025.
“Germany has been pretty sluggish in terms of trading performance rebounding back since the pandemic but I think it’s slowly coming back.”
More positively, he notes strong interest in the Nordics. This follows CapMan’s acquisition of a portfolio of 28 hotels from Midstar Hotels.
“As a consequence of this deal which was the largest portfolio to ever trade in the Nordics, investors have seen that there is international money that's interested in the Nordics. I think we’ll see more activity there.”
Moving on to warmer climes, Southern Europe continues to remain a hotbed.
Marianna Papachristophorou, partner & head of Hospitality Portfolio at Invel Real Estate notes: “We’ve seen tremendous growth in Greece and Italy - we’re doubling down on these markets but we’re also starting to look at Spain and Portugal as more investment opportunities open up.”
And hostels aren’t being left out, with Papachristophorou expressing excitement about the segment and sharing plans to “grow aggressively in the space” following its $200 million investment in YellowSquare earlier this year.
Markets in Greece are seeing substantial activity as well as investors become more cognisant of the opportunities. Late last year, Blackstone purchased the Grand Hyatt Athens from Henderson Park and Hines for €235 million, focusing attention on the city. And the surrounding islands are expected to benefit as well.
“Trading performance is very strong and debt is very accretive to deals day one. If it’s a good product which is well-capexed or there's a good story there, those are the markets where people are realising that even though they haven’t been top of people’s hit lists, there are good trading fundamentals and good infrastructure,” Duffey notes.
Looking ahead
But despite the optimism, there are challenges on the horizon, with Gohil pointing to geopolitical risks as one of the most significant hurdles for investors.
As we look ahead to the latter half of 2025, while geopolitical uncertainties and liquidity issues are areas of concern, the landscape in EMEA is a mix of caution but big on optimism and investor interest.
As Papachristophorou puts it: “Pre-Covid and in the early post-Covid era, the percentage of our portfolio which was hospitality was about 10 per cent. Now it’s 20 per cent and we see that increasing. The commitment is that we invest more and more in hospitality.”
By Ifeoluwa Taiwo
