Resilient European economies, the continued popularity of Mediterranean leisure destinations and Europe’s importance for business travellers should drive hotel occupancy and revenues in 2017, according to the latest PwC European Cities Hotel Forecast.
While security concerns saw mixed fortunes for some city destinations in 2016, overall it was another record-breaking year for European tourism with 12 million more visitors and a total of 2.8 billion nights spent in tourist accommodation. An influx of tourists from the United States and a booming Asia should drive hotel trading in 2017 with the majority of key city destinations likely to experience continued growth.
PwC’s performance review concluded that the majority of cities with the exception of Geneva and Zurich are expected to achieve revenue growth in 2017, and almost all cities should see additional growth in 2018 – again with the exception of Zurich. Measured by RevPAR, Porto tops the 2017 growth table with 14.8% forecast growth, followed by Dublin (8.7%) and Budapest (6.8%), Madrid (5.9%), Lisbon (5.6%), Prague (5.5), Barcelona (5.4%), Frankfurt (4.5%) and Paris (3.6%).
Looking to 2018, in local currency, Porto is forecast to maintain its double-digit revenue growth at 12.8%, followed by Budapest (9.9%), Madrid (8.2%), Dublin (7.4%), Lisbon (6.8%), Paris (5.8%), Barcelona (5.2%), Berlin (3.1%) and Frankfurt (3%).
Growth is being driven by continued economic growth and travel demand with the UN World Tourism Organization forecasting a 2% to 3% growth in global tourism for 2017.
“Despite general elections across Europe this year the outlook for hotels in Europe is largely positive,” said Liz Hall, head of hospitality and leisure research at PwC. “Many destinations have invested in improving and promoting the quality of their tourism services and with tourism set to rise again this year, many of the cities can expect good growth. A strengthening dollar will make trips to Europe popular, with a weak pound making London in particular, even more attractive. However, this will be balanced by unprecedented geopolitical uncertainty and travelers’ security and safety concerns remain.”
Occupancy league table
Dublin tops the European city occupancy league in both the 2016 actual and the future forecasts. In 2017, occupancies are forecast to be above 80% in two cities- Dublin (83%) and London (82%) followed by Amsterdam (78%). In 2018, Barcelona is set to overtake Amsterdam, making the top three cities Dublin (84%), London (82%) and Barcelona (80%).
In 2017 the most expensive city by rate is Geneva (€300.2) followed by Zurich (€244.9), Paris (€229), London (€164), Rome (€148.2), Barcelona, Dublin (€138.1), Milan (€137.9), Amsterdam (€137.5) and Frankfurt (€127.4). In 2018, all cities will see further ADR growth except Geneva and Zurich, with the top five of 2017 staying the same. There are rises for Amsterdam (9th to 8th) and Dublin (7th to 6th). The gap in euro terms between those at the top and bottom remains.
In 2017 Geneva tops the RevPAR rankings driven mainly by ADR. Zurich (€180) is second followed by Paris (€165), London (€134.5), Dublin (€114.7), Barcelona (€110.4), Amsterdam (€107.6), Rome (€103.3), Milan (€90.6) and Frankfurt (€90.3) completing the top 10. In 2018, the top eight stays the same with Frankfurt (€93) overtaking Milan (€92.1).
Hotel investment and deals outlook
European hotel deal activity cooled by nearly 10% from the record high of €21bn in 2015 to €19bn in 2016, still the second highest level ever recorded. This drop was largely driven by a slowdown in transaction volumes in the UK, which fell by over 60% due to uncertainty surrounding the Brexit vote. Germany attracted a record level of investment and accounted for 27% of all European transactions by volume in 2016 followed by the UK (25%), Spain (11%) and France (8%).
Looking forward to 2017, general elections in France, the Netherlands and Germany could impact investment activity. PwC anticipates a similar volume in hotel transaction volumes in 2017 following better than expected economic data emerging from the UK and Europe over the past few months, plus increasing investor appetite for hotels in particular as an alternative real estate asset.
“Hotel investment in 2016 couldn’t reach the record heights of the previous year, but still recorded the second highest level ever at c. €19 billion,” said Sam Ward, UK hotels leader at PwC. “This was mainly driven by a sharp decline in UK hotel deals, due to the uncertainty surrounding the Brexit vote.
“Germany, meanwhile, enjoyed a record year, being considered the safe haven for investors seeking steady returns; and the larger deal activity was generally spread more evenly across the rest of Europe compared to previous years. Despite important general elections across Europe, we anticipate similar levels of investment activity in what is an increasingly mainstream asset class.”
The UK outlook
PwC’s latest forecast for London in 2017 and 2018 marks a return to growth with 3.3% and 2.5% RevPAR growth forecast respectively in each year, taking RevPAR to £120 in 2017 and £123 in 2018.
It expects growth in the first half of 2017 to build on from the strong sector performance at the end of 2016 driven by the fall in the pound and a more resilient than expected UK economic performance in 2016 In addition, all EU economies are now expected to expand this year.
Occupancy remains high but growth of 0.9% could take occupancy up a percentage point to 82% this year and an ADR gain of 2.4% in 2017 taking rates to £146. A further 0.5% gain is expected in 2018 keeping occupancy levels at 82% with an ADR growth of 2% taking rates to £149. Above the long term average supply growth as well as security and safety concerns amongst travellers could upset things.