Europe experienced healthy hotel investment activity in Q1 2023 (+18% vs Q1 2022) despite high financing costs and economic & geopolitical concerns; this was driven by several major transactions (e.g., The Westin Paris, Mandarin Oriental Bodrum, and Le Richemond Geneva). Looking at the trend on a trailing 12-month basis to March 2023, the transaction volume reflects mild growth (+3%). Looking ahead, the deal pipeline suggests an uptick in activity for the second half of 2023.
The data suggest that hotel yields in Europe are, on average, 70bps higher in Q1 2023 than at the end of 2019 due to growing interest rates and uncertainty. However, each asset has nuances. The yield profile of prime hotels in core markets is expected to hold, with higher markdowns likely to be found in secondary locations.
Following a robust recovery in 2022, hotel performance continued expanding in Q1 2023, underpinned by the pent-up demand and pick-up of corporate and group segments. While occupancy levels in Q1 remained 5% below 2019, the robust ADR growth (+19%) resulted in RevPAR surpassing 2019 levels by 13%. Most countries recorded double-digit RevPAR growth during Q1 2023, with Lithuania, Turkey, Ireland, Croatia, and France leading the way.
Following a relatively slow hotel supply growth in 2022 (<2%), pipeline is expected to remain constrained by the rising construction costs and a lack of financing, causing delays and cancellations. While more openings are expected in 2023, the overall hotel pipeline in Europe is relatively moderate, with expected growth remaining below 2.5%. The largest new supply is expected in Germany, the UK, Spain, and Poland.
Demand for accommodation in European hotels strongly bounced back during the past 12 months, especially in leisure destinations. While domestic travel primarily drove recovery, international visitation also picked up (overall international passengers demand in Europe only 16% behind 2019 for YTD February 2023). There are differences across Europe with the CEE markets lagging due to the war in Ukraine while many markets in Western Europe and the UK are already above 2019 (total arrivals).