- Cushman & Wakefield survey of major investors also finds 70% expect European hotel values to rise leading to transaction prices increasing in 2025
- Madrid, Barcelona, and Rome are the most sought-after gateway cities for investment
- 94% of investors plan to allocate the same or more capital towards European hotels compared to last year
- The Nordics, CEE and SEE regions witnessed the strongest increase in interest
- Hotel investors’ average return on equity requirements is 13.6%, two percentage points lower than last year, supporting the transactional market in 2025
- 4.8% average “green premium” is expected for hotels with the highest ESG credentials
The Iberian Peninsula, Italy and France are Europe’s most in-demand hotel investment destinations in 2025, according to Cushman & Wakefield.
The firm’s fourth edition of its Hotel Investor Compass survey shows that southern European gateway cities are firmly on investors’ radar with Madrid, Barcelona and Rome identified as the most attractive cities in which to invest. The destinations registering the sharpest rise in interest year-on-year are Prague (+14%), followed by Munich (+8%), Milan (4%) and Edinburgh (+4%).
The survey of major investors, who have collectively deployed over €16 billion since 2019, reveals an expectation that hotel prices will increase from 70% of respondents who intend to be net buyers in 2025, underpinned by declining cost of capital and rising appetite among investors. The most significant increases in hotel pricing are expected in Italy and the Iberian Peninsula followed by the UK & Ireland and France.
Of those surveyed, 94% plan to allocate the same or more capital toward European hotels in 2025 relative to last year. The results suggest growing investor confidence in the European hotel market’s prospects, with the proportion of participants planning to retain or grow their investments up by 15 percentage points on last year.
The increasing confidence in the sector is underlined by investors reporting lower return on equity requirements in 2025, reducing by two percentage points to an average of 13.6%, a boost for the investment market that should also support further growth in hotel values.
The most sought-after investment targets are value add opportunities, where investors seek to acquire assets and invest in their refurbishment to increase their value. However, investors are also increasingly targeting core and core-plus investments, with these investments up by 14 and 9 percentage points respectively compared to last year’s survey. More than half of investors (55%) plan to be net buyers in 2025, up from 47% last year.
Hotels with the strongest ESG credentials are projected to command a significant “green premium”, with investors expecting to pay nearly 5% more for properties achieving the highest level of ESG certification such as BREEAM Outstanding or LEED Platinum ratings.
Investor anxieties about financing and yields have decreased since 2024, partly due to the more favourable interest rate environment. The top challenge identified by investors is now escalating construction costs followed by geopolitical & macroeconomic risks, with 65% and 44% of respondents finding them highly or very highly challenging, respectively.
Jon Hubbard, Head of Hospitality EMEA at Cushman & Wakefield, said: “European hotel investment is likely to ramp up in 2025, with significant growth in the proportion of investors planning to deploy at least as much capital, if not more, in the year to come. The improving sentiment is partly a result of the more favourable interest rate environment, with the European Central Bank slashing rates four times in 2024, and further cuts expected this year, but investors also expect capital appreciation across all regions in 2025, driven by strong recent hotel performances and robust demand. Despite the backlash against net zero taking place in many parts of Europe, investors are still prepared to pay a significant premium for sustainable assets. ESG credentials are likely to remain a critical determinant of success in hospitality real estate investment going forward, and as such must be factored into investors’ decision-making.
