Luxury and leisure
“We are seeing continued strong demand for European hotels, particularly those with leisure exposure in markets with room for rate growth. Leisure assets that are in markets where they can up-brand and push ADR have been in high demand,” says Paul Kapiris, director at Eastdil Secured.
Saurabh Chawla, vice president - transactions at Westmont Hospitality agrees, adding: “We’re seeing increased appetite from investors in the leisure space, partially linked to a post pandemic surge in leisure tourism. Many markets are seeing a surge in investment volumes and more and more capital is coming to this part of the world.”
According to MSCI data, commercial property investment in Europe began to recover from a two-year slump in the second half of 2024, with full year figures up 4 per cent to €189 billion, driven by investors turning to the hotel and residential sectors.
And with European hotel transactions in 2024 at the €19.5 billion mark, up 34 percent YoY according to research from CBRE and cross border capital surpassing 60 per cent, it’s clear that the appeal of European hotels to buyers further afield is growing. Experts note that it’s luxury assets - especially those in lesser-known destinations – that are catching the eye of many investors.
“Luxury is a big focus for investors and there are many attempts to establish new names in the luxury segment. Investors have moved their attention to less-established destinations that were previously considered tertiary, working with the domestic market to grow the presence of international brands,” says Coldwell Banker Commercial’s head of hospitality Leonardo Stassi as he points to growing interest in Sicily’s Noto.
He further explains that the segment’s resilience – thanks to guest being less sensitive to price rises - particularly during the pandemic and post-pandemic periods means that suitable luxury assets enjoy a lot of attention when they come to market.
However, there is also evidence of market polarization – while luxury is thriving, segments such as budget/economy and hostels are gaining traction.
“The budget segment is one that has been left unattended by investors and brands for a long time so there’s plenty of stock out there that’s dated and not aligned with the expectations of international travellers. So investors see an opportunity in creating a quality supply of budget hybrid concepts,” Stassi explains.
Risks and challenges
However, Stassi warns that a hyper focus on luxury comes with risk.
“Luxury hotel performance in Europe has improved a lot, with revpar increases mainly driven by the US market. However, if we get to a point in the cycle where that US demand wanes and most travellers are intra-European, revpar may diminish. Something investors need to evaluate when they underwrite is that levels achieved so far may not be sustainable for the long term.”
Other challenges investors need to consider include rising costs, compressed yields and fierce competition, all of which come together to make dealmaking more complex.
“Owners have seen impacts to the bottom line from increased staffing costs, utilities, business rates, construction/refurbishment costs, all reducing the bottom line at a time when interest costs have also increased significantly,” Kapiris says.
However, he notes that whilst the 3-month Euribor sits around 2.65 per cent and the 3-month Sonia is around 4.5 per cent in late January 25, margins for hotels are as competitive today as they were in 2018 to 20199, with hospitality being one of the more favourable sectors for lenders.
Chawla highlights the importance of using partnerships to help unlock deals, noting Westmont’s decision to form a JV with a blue-chip development group as an answer to roadblocks it came up against while attempting to complete on deals.
“We’d been looking to do deals in Spain but were coming up against challenges. To deal with the issue of it been quite expensive but with limited returns and given the value of greenfield development in Spain, we started exploring greenfield development with a partner who helps mitigate the development risk.”
The road ahead
While destinations such as Rome, London and Ibiza continue to hot up, other destinations are poised for activity. These include Lake Como where Stassi says many tired assets will be traded in the first half of this year for conversion into luxury properties.
“The luxury offering in Lake Como is set to increase – the area will see a lot of transactions where rundown assets suitable for luxury positioning will be traded to investors who will convert them into luxury hotels,” Stassi says.
Chawla also notes current strong appetite in Greece, followed by a moment in the sun for the likes of Croatia and Montenegro.
“There are a lot of deals happening in Greece and capital flowing in. Once this has stabilised, the next hotspots will Croatia, Montenegro and destinations in that part of the world – we’ve seen very limited appetite there for now as there are some challenges which the governments there are trying to overcome but these are countries with significant potential.”
Kapiris adds: “We expect to see strong continued demand for cities like Paris, Milan, Rome, and Madrid which have all had strong revpar growth in recent years. More generally, investors are looking at Greece in the same way that many investors thought of Spain a decade ago. Ownership is still fragmented, there is a lack of branded product, debt is very compelling, and Athens is performing well.”
He also forecasts more product coming to market in London. “It will trade well due to the lack of opportunity in the last five years and fact it remains the number 1 destination for hotel investors and brands,” he says.
Looking further afield into the wider EMEA region, Chawla spotlights Africa, noting Westmont continues to pursue deals on the continent. “We plan to grow our platform there and we’re launching several funds to help us do that even quicker. I think there’ll be lot of investment there very soon and we believe a lot of capital will flow into Africa from the Middle East and Europe.”
Looking ahead, Kapiris says the next phase of investment will feature more pan-European portfolio/platform sales as well as recapitalisations and continuation vehicles. He also sees more single asset sales in well performing markets and a focus on conversion of older style branded hotels towards modern lifestyle hotels that serve the interests of the new generation of affluent traveller.
As we ride the wave that is 2025, it’s clear the momentum in Europe shows no signs of slowing. As Kapiris very nicely puts it: “FOMAM (fear of making a mistake) has been replaced by FOMO (fear of missing out) and it is clear from the activities of Blackstone, Starwood, KKR and other major players that there is a belief that now is the time to go.”
By Ifeoluwa Taiwo