European cities hotel forecast 2018 & 2019

European cities saw unprecedented hotel performance in 2017. Almost all the cities in our latest forecast are expected to see further growth in 2018 and 2019. Strong demand has propelled some into the spotlight yet again.

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Which cities are best placed to grow in 2018 and 2019?

In 2018, Porto leads the growth pack with over 10% RevPAR (revenue per available room) growth anticipated; Amsterdam, Lisbon and Prague could see around 7% RevPAR growth and further robust gains are expected in Milan and Paris. Geneva and Rome are also forecast to see some moderate growth. But the pace of growth is expected to slow in London in 2018, as the weak pound effect fizzles out and a supply spike dampens occupancy. Paris has shown sustained recovery and shares the top spot on the growth chart in 2019 with Lisbon, with around 6.5% RevPAR growth expected for both cities.

RevPAR anticipated growth

Which cities will be the most expensive, the fullest and have the highest RevPAR?

Our research shows that while growth remains a dominant theme, it’s not just about growth rates and the absolute levels of trading are a key piece of the hotel jigsaw in each city. Analysis of three key metrics in absolute terms shows a very different picture:

  1. Highest occupancies - forecast to be in London in 2018 (despite high supply additions) and Amsterdam (also despite high new supply), both with approximately 82% occupancy in 2018

  2. Highest ADRs (average daily rates, €) - in Geneva (approximately €242), Paris (€236), Zurich (€197) and London (€162), in 2018

  3. Highest RevPARs (€) - Paris tops the charts in both 2018 (€176 RevPAR) and 2019 (€188 RevPAR). Geneva and Zurich follow and London takes fourth place this year.

Economic, travel and supply outlook

We anticipate relatively upbeat global growth in 2018. Growth is on track to be the fastest since 2011 and could grow by almost 4% in purchasing power parity (PPP) terms, adding an extra $5 trillion to global output in current value terms. More importantly, we expect growth to be broad based and synchronised, rather than dependent on a few countries. In the Eurozone, peripheral Eurozone economies are expected to outpace the core. Both strong wage growth and high employment should support leisure and travel spending. 

 

Stellar global travel demand drove 671m international overnight visitors to Europe in 2017, driving record hotel metrics. Besides the strong demand from intra-European markets, US, China and the Russian Federation contributed significantly to growth. Another record year is anticipated in 2018 and there is no sign the boom is running out of steam yet. 

 

Supply growth has remained relatively constrained in many destinations across Europe and this has allowed occupancies to soar, driving up ADR. Smith Travel Research report that Europe has see seven years of limited supply growth together with mainly good demand growth - an ideal backdrop for hoteliers. But how long can this continue?

 

Four challenges facing hotels

Profitability erosion - why me? What can I do about it? 

OTAs (Online Travel Agencies) have an important role to play in selling perishable goods (rooms) and should be integrated in a well-defined corporate and property-based revenue management strategy. As we move into a world where data is king, we are also convinced that comprehensive, organised and easily retrievable guest data will be a vital ingredient in the profitable growth of operators going forward.

“Revenues may be rising but simultaneously hotels face rising cost pressures to sell rooms. One area where hotels have to spend more is acquiring customers through Online Travel Agencies and other intermediaries - this continues to push up commission fees and challenge hotels.” Liz Hall, Head of Hospitality & Leisure Research, PwC UK

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Changing guests needs - how can we adapt to the needs of new market segments?

Two tools are becoming indispensable for hoteliers who want to find out what guests want. First, hoteliers need to thoroughly analyse online guest reviews and use review comments as a foundation for capital expenditure and operational process decisions. Online comments should not be a ‘nice to have’, but should be treated as the most important source of guest feedback and taken as a basis for change. Secondly, the industry needs to leverage rapid developments in digitalisation and big data to capture, segment, analyse and group guest data in the most useful way.

“A key risk for hoteliers is the ageing of the customer base and the need to capture a new generations of customers. We carry a lot of discussions with start-ups to better understand how we can collaborate to reach younger customers and see how we can adapt our offer to better suit the needs of Millennials.” Julien Guintrand, Group Finance Director, B&B Hotels, 2018

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The threat of over-tourism - when is many too many?

Increasing international demand for key destinations needs to be carefully managed. An approach to controlled growth should include formulating a clear destination strategy, including a clear positioning, as a basis for government action and the provision of private services. This could include city planning and zoning, hotel development regulation, centralised product offering planning, infrastructure planning, and so on.

“Its primarily up to destinations to exert a controlling interest. Intelligent marketing concepts can help reduce the numbers at hotspots.” Norbert Fiebig, President,  German Travel Association, German Travel Association DRV*

*TTG 15/03/18 "Intelligent marketing key to stop overtourism"

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Sharing economy - ignore or embrace it?

The hotel industry should take care not to make the same mistakes with shared accommodation providers that it made with OTAs 20 years ago, when most players expected the new channels to disappear as quickly as they had sprung up. Guess what: they’re still here. Instead, the industry should listen very carefully to guests who are saying that they’re looking for authentic, real and tailored accommodation products for a variety of needs - on different occasions the same person may be travelling with their spouse, on business, or on a stag or hen weekend and take cues in terms of their products and service offering.

“The phygital model is at the heart of hoteliers' concerns. It has become essential to ensure continuity in the customer relationship, by combining a high-performing digital platform (i.e. including a chatbot) and a strong human dimension. This model should allow hoteliers to better know and understand customers and to provide more personalised services.” Nicolas Broussaud, Head of Transactions, Accorhotels

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Deal talk

European hotel transaction volume reached €20.9 billion in 2017. This was an 11% increase compared to 2016 deal volume and surpassed the record level achieved in 2015. This growth was driven by a resurgence in UK hotel investment activity in 2017 and record levels of investment in the Spanish hotel market. The start of 2018 has seen a strong level of investment activity in the UK and Spanish markets. Put together with the continued European and international interest in the German hotel market, we anticipate European hotel transaction volume to moderately increase in 2018 from 2017 levels.

European hotel transaction volume

Contact us

David Trunkfield
UK Hospitality & Leisure Leader
Tel: +44 (0)20 7804 6397
Email

Liz Hall
Head of Hospitality & Leisure Research
Tel: +44 (0)20 7213 4995
Email

Samantha Ward
Hotels Sector Leader
Tel: +44 (0)20 7212 2974
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