According to the United Nations World Tourism Organization (UNWTO), the number of international tourists reached a new high in 2016 – 1.235 billion. Almost a half of them (615 million) visited Europe, making the continent the most popular tourist destination in the world.
The hotel industry is growing alongside the tourist numbers. According to PwC, the total volume of investment in this segment in Europe amounted to €18.7 billion in 2016. Though this is 9.7% below the record of €20.8 billion set in the last decade, in general, analysts denote a stable growth in investment since
Taking only single transactions into account, over €9 billion was invested in European hotels.
Why the market will continue growing
According to a survey conducted by PwC in 2017 among investors on different types of property in Europe, 70% of the respondents deemed the prospects of hotel investments "good" or "very good" (51% and 19% respectively). A number of reasons are behind this optimism:
1) Tourist numbers are expected to continue increasing
In addition to the fact that Europe is the most popular tourist destination in the world, four of the five countries at the top of the 2017 Travel and Tourism Competitiveness Index are in Europe: Spain, France, Germany and the United Kingdom (UK). According to industry forecasts, the number of tourists will grow by another
The tourist flow estimates are directly related to disposable incomes. According to UNWTO, in 2016, Chinese tourists spent the most (€235.9 billion), followed by tourists from the United States (US), Germany, UK and France. The economic conditions of these countries will largely define the future development of international tourism.
|Total tourist spending in 2016 (EUR, billion)||Projected growth between 2017 and 2020 (%)|
|Personal income||GDP (per annum)|
According to Trading Economics, personal income and GDP in these countries will grow. In the UK and China, income levels will rise by 29% and 24% respectively, while the US will demonstrate the most significant economic growth, at 2% per annum.
2) Stable business tourism demand
While holidays are the main reason for most international trips (around 75% according to ITB Berlin), business trips still constitute an important segment of this market.
According to a survey by American Express Global Business Travel, in 2017, Europe will host the largest number of international meetings, conferences and exhibitions in the world. In the opinion of most respondents, travel costs in large organisations will increase by approximately 1% in 2017. Therefore, a stable demand for hotels can be expected in the near future.
Hotels fit the collaborative consumption economic model perfectly. In my opinion, the segment of apartment hotels (where rooms represent separate apartments) will continue to grow. They are becoming more popular among business travellers, who use them as a “home base” for several weeks or months, before moving to another city for work.
3) Favourable economic climate
Investment sustainability largely depends
According to Trading Economics, the annual growth
In Spain, one of the most popular tourist destinations in the world, experts anticipate the dynamics to be positive up to 2020 at least, with annual GDP growth amounting to 0.6% on average, the unemployment rate declining by almost 4%, and personal income growing by 13%.
4) High yields and
Hotels remain to be an attractive asset type for two reasons:
- They have relatively high yields, typically between
4–6%,compared to street retail, which yields 3–4%,and long-termflat rentals at only 2–3%per annum;
- In the case of large hotels, contracts with operators can be signed for
Where should you invest to get the best returns?
According to experts, terror attacks have affected travel destinations, not the number of trips. According to preliminary UNWTO data, in 2016, tourist numbers increased significantly (by 10% and more) in Cyprus, Bulgaria, Portugal and Spain but shrank in Turkey (29%), Belgium (13%) and France (5%).
In our opinion, France will retain its position as the largest tourist market despite fears over terrorism. Spain and Italy will continue to draw crowds to their resorts, while Germany will benefit from its reputation for stability. On the other hand, Turkey will temporarily take a back seat as tourists seek affordable alternatives in more secure countries: primarily Cyprus and Greece.
Greece currently offers excellent opportunities for hotel investments. the main reason is that its property market will soon hit rock bottom before bouncing back. According to the Bank of Greece, property prices in the country fell by 40% between 2008 (when the latest price peak was recorded) and 2016. A square metre in Greek city centres is about 1.5 times cheaper than in Portugal, twice as cheap as in Spain and almost thrice as cheap as in Italy.
According to Trading Economics, prices of the property in Greece will increase by 22% by 2020. This will be supported by GDP growth (by 0.4% per annum) and a decline in unemployment (from 21.7% currently to 18.8% in 2020).
Tranio analysts looked at the availability of hotels, occupancy, average daily rates and
Hotel markets of large European cities (2016)
|City||No. of international tourists* (million)||No. ofrooms perthousandtourists||Occupancy(%)||Averagedailyrate (EUR)||Revenueperroom(EUR)||Yield(%)|
*The tourists who have spent at least one night in the city
Another important factor when assessing the hotel
This market is strictly regulated in Germany. According to Hessenschau.de, in Frankfurt, the local authorities have declared the remote lease of 1,293 flats illegal between 2013 and 2016. The number of hotel rooms there exceeds Airbnb offers more than 26 times. In Berlin, where the number of hotel rooms exceeds the number of Airbnb listings by four times, the owner must occupy at least a half of the property being leased or risk a €100,000 fine. In Munich, Vienna, Brussels, Dublin and Athens, the ratios are approximately the same.
Number of hotel and Airbnb offers in large European cities (2017)
|City||No. of hotel rooms (thousand)||No. of Airbnb listings (thousand)||Rooms-to-listings ratio|
In Porto, Lisbon and Paris, the competition between hotels and Airbnb is greater: the number of hotel rooms there exceeds rental offers only marginally. in these three cities, investing
Choosing the right property
|Budget||At least €10 million, otherwise, there is a high risk the location is not very good.|
|Location||A large city, independent of seasonal demand (taking the average tourist flow and the competition from
|Hotel room capacity||Starting from 70 rooms. Small hotels are likely to have small (and, subsequently, risky) operators that will "eat up" the yields.|
|Operator||A large international or a local company with a good reputation and a vast management experience.|
|Contract with the operator|