Hospitality Market Update

It feels like Europe is having a bit of a moment. At the time of writing, the CAC 40 is up 5.5% YTD, the FTSE 100 up over 7% and the DAX is up over 20%, reflecting Europe’s strongest relative start to a year since 2000, and in marked contrast to the lacklustre performance of the past decade.

Some of the factors diverting attention to Europe are also causing renewed interest in its hospitality arena. When investors have been digging in and looking to participate, we see that there are some fundamentals that underpin many of the theses for the sector in our region:

1. Share of global wallet: Tourism is on the rise, and Europe has an outsized and growing share of the global travel market. In 2019, Europe had 50% of the world’s international arrivals, and 37% of global tourism spend. In 2024, those figures were 53% and 40% respectively.
2. The supply/demand dynamic: Even allowing for short-term hiccups from shifting trade policies, economists predict a healthy growth in travel-related figures: a 4.4% CAGR in domestic travel spend in Europe between 2024 and 2030, and a 5% CAGR in inbound overnight arrivals over the same period. On the supply side, over that same five-year period, it’s projected to grow by no more than 0.5%.
3. Value-add: In terms of the professionalization of the hotel sector, Europe still trails the U.S. in terms of branding, distribution systems, third-party management and asset management. On branding, for example, 20 years ago, only 30% of the European estate operated under international brands, while the U.S. had 70%. Even today, Europe still has only 40% branded. And while 60% of the pipeline is branded, even just the sheer volume of independent hotel operations across the continent provides ample scope for value-add opportunities.

In the context of the brighter story in the wider economy, and despite what might be short-term headwinds in some individual markets, investors are feeling good about the future for European hotels. While the spectre of instability to the east remains present - and has been there since 2014 - investors looking for a data-driven thesis are finding good reasons to explore the Old Continent.