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Spotlight: European Hotel Trends Outlook

Changing consumer spend habits and expanding international travel is helping to build the profile of numerous emerging European hotel markets


Key European travel trends

Growth in international travel accelerated in 2018, with inbound tourist arrivals reaching 1.4 billion, according to UNWTO. Inbound arrivals to Europe accounted for more than half of this, totalling 713 million while increasing 6% compared to the year prior – cementing Europe’s position as global leader in terms of inbound travel. Additionally, Europe continues to be the world’s largest source market of outbound tourists.

This continued appetite to travel frequently across Europe along with an eagerness to explore new destinations is helping to boost a number of emerging tourism markets while opening extensive hotel investment opportunities along the way.

Changing consumer spend preferences continue to boost a number of emerging European hotel markets

Consumer spend preferences have started to lean more heavily in favour of experiences, such as holidays. This has resulted in total spend on accommodation services increasing 26.2% across European nations over the five years to 2018.

Key Eastern European cities have been notable recipients of such growth, driving up occupancy rates and resulting in 11.9% RevPAR growth in 2018 across the region - outstripping the strong Europe average of 5.2%, according to the STR press release.

Shrinking unemployment rate coupled with strong real wage growth outlook in Europe (due to increase 5.9% between 2018 and 2023, after inflation) provides a compelling outlook in terms of continued travel demand. Improving connectivity is therefore a key objective for many emerging markets in order to capitalise on potential future demand.

The chart below outlines the top 20 markets by means of airport passenger growth, benchmarked against interest levels derived from travel-related Google searches - allowing a number of potential growth markets to be identified.

Figure 1

Top 20 European tourism growth markets
Source: Savills Research; Google Trends; anna.aero

Major Portuguese hubs of Porto and Lisbon stand out, owed to recent airport expansion leading to passenger volumes increasing by 15.9% and 13.7% on average per annum respectively, between 2014 and 2017. Lisbon’s interest levels continue to excel with a recent run of international events resulting in strong year-end RevPAR growth in 2018 (particularly convincing off the back of the 21.8% growth experienced in 2017).

The cluster of strong performing Central Eastern European markets features Budapest and Bucharest, each with rapidly advancing tourism markets matched with substantial RevPAR growth in 2018. Prague also ranks highly in terms of both airport passenger growth and interest levels. However, a particularly strong year in 2017 and extensive hotel stock has created marginal softening in 2018 RevPAR growth.

A number of well-established tourist markets also feature including Madrid, Barcelona and Amsterdam. The position of such cities could be boosted further if taking into account alternative transport methods. For example, London has drastically improved international rail services, adding new direct high-speed routes to Amsterdam, Brussels and soon Bordeaux. Likewise, Manchester has seen extensive growth through multiple transport hubs, resulting in overseas arrivals increasing on average by 9.9% per annum between 2014 and 2017.

Other established markets have begun to capitalise on current geopolitical tensions. For example, Amsterdam and Dublin have been the recipients of major corporate relocations in the run-up to Brexit, offering a potential boost in terms of future corporate demand.



Bounce-back destinations

2018 marked a strong year of recovery for a number of markets that have experienced periods of softening following security challenges. Despite not featuring in the top 20 ranking (see chart above) due to relatively weak average annual growth in airport passenger numbers, Paris did report double digit RevPAR growth in 2018 - a significant recovery following the terrorist attacks of 2016. Brussels too has experienced a pick up in RevPAR in 2018 (+12.4% year-on-year) following softening after the bombings seen in early 2016. This recovery, coupled with relatively subdued levels of stock expansion points to positive outlook in terms of operational performance.

Similarly, Istanbul (which features in the top 20) has achieved very strong recovery off the back of multiple security threats and political unrest. Visitor arrivals and subsequently occupancy rates have therefore surged, confirming its status once again as a key global tourist destination. This has been helped somewhat by government subsidies paid to flight operators as well as the partial-opening of the new 90 million capacity Istanbul Airport in October 2018.

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