Hotel metrics continue signaling recovery across Europe

EUROPE A majority of Europe’s markets are now showing growth, although a few are still declining, particularly if their national economic climate has not favored the increasing demand for hotel accommodation or if high levels of new supply have weakened the market’s ability to bounce back.

London hotels have experienced such strong trading in 2010 that the city is now one of Europe’s strongest performers in the race for recovery, according to consultancy HVS London.

London hotels are expected to achieve an average year-on-year increase in RevPAR of around 15% by the end of 2010, putting their performance alongside that of hotels in Frankfurt, Istanbul, Munich, Stockholm and Zürich. Of 36 Europe markets studied by HVS London, these five are expected to outperform the rest with solid occupancy growth and a higher ADR than in 2009.

While occupancy is showing continuous gains, RevPAR in London’s luxury hotels overtook 2007 levels through the summer. Growth is expected to continue into next year and beyond, particularly with a royal wedding in April and the Summer Olympics in 2012. London’s hotels have experienced a record-breaking summer across the board, with ADR increasing 12% year-on-year on a euro basis and RevPAR expected to end the year 15% up.

Hotels in Munich have experienced the strongest increase of all Europe markets with RevPAR growth of 32% year-on-year. Frankfurt, Berlin and Munich have all enjoyed the stability provided by Germany’s solid conference and events market throughout the year, balanced reliance on domestic and international travel, and a steady hotel pipeline.

Stockholm hotels are also performing in the top tier, with a 17% increase in RevPAR driven by a steady growth in occupancy of nearly 2 percentage points and an impressive 13% jump in average rate. Other top performers include Zürich, with a year-on-year increase in RevPAR of approximately 9%, and Istanbul, where hotels recorded an improvement of 18%, largely driven by solid growth in occupancy and monthly levels above those of 2008 since May.

While the leading markets in Europe are showing double-digit RevPAR growth, Amsterdam, Barcelona, Birmingham, Edinburgh, Madrid, Paris, Vienna and Warsaw are expected to record above average growth by the year end. And although cities such as Brussels, Hamburg, Lisbon, Milan, Manchester, Moscow, Rome, Sofia and Tallinn are still some way down the rankings in the third tier, they are still expected to show positive RevPAR growth for 2010.

By July, only seven of the 36 Europe markets included in HVS’ analysis showed a year-on-year decline in RevPAR, a clear sign that the process of recovery is underway. The leaders of this recovery appear to be those cities that have benefited from a diverse pool of source markets and customer segments, and a solid basis of demand generated by regular events and a dynamic domestic market.

The crisis has had some positive effects on the market. The decline of the historical sources of business has pushed hoteliers to take risks and target emerging segments or source markets. Most cities are currently realizing the growing importance of the Chinese, both as travelers and investors, and the same is true for the other BRIC countries.

At the bottom of the 2010 RevPAR performance league will be Athens, Budapest, Bucharest, Bratislava, Copenhagen, Dublin and Prague, all of which are showing further declines in occupancy and ADR. These markets are likely to take longer to return to previous levels of performance.

London is also gaining ground in terms of hotel values. While Paris still leads the way with an average value of €566,000 per key, up 4% year-on-year, London hotel values are catching up and are likely to achieve €517,000 per key by the end of 2010, up 7% year on year. Geneva and Zürich have this year switched places, with third-placed Zürich averaging €430,000 per key, while fourth-placed Geneva should achieve an average value of €428,000. Istanbul continues its ascension towards the top and is expected to end the year with hotels achieving an average value of €339,000 per key.