European hotel outlook

European hotel performance has caused concern in Q1 of 2023, but thanks to recovering corporate demand and resilient leisure travel all things point towards a healthy performance for gateway cities and secondary markets. Performance is trending upwards after winter, with occupancy rising closer to 2019 levels and ADR driving RevPar gains up to +28.6% for May.

DACH and Benelux countries lagged even further behind during the first quarter, due to more conservative domestic demand; lack of group recovery, namely in Germany; limited luxury and leisure offerings; and limited dollarised travellers. A month later, however, and these countries saw RevPAR on a running 28-day basis trending upwards among other European countries as well.

Take the lead

A great deal of this momentum in Europe has been driven by gateway cities, which should continue consider recent levels of occupancy. Secondary and regional markets, especially Italy and Portugal, are also trending higher for the next 90 days.

In early 2023, resort-heavy markets started to outperform staycation areas, and that occupancy is even higher for the summer months of 2023 compared with 2022 – especially Italian islands with a 47% occupancy on books, 11% than the year before.

Luxury success

With the exception of economy, all classes of luxury showed lower levels of pre-pandemic occupancy for the past year ending March 2023. However, due to gains in ADR all had higher RevPAR growth with luxury the standout with 36% due to higher room rates.

Look to the future

The economic climate offers many reasons for concern but there are plenty of reasons for the European hotel industry to be optimistic. While the pandemic closed roughly 4.5% of supply growth, this has been offset by 4% growth in new openings, future growth of around 1%, and brand conversions have tripled.

The risk of recession should be offset by recovering business and group demand, as well leisure travel as occupancy on the books is even higher than the previous year, rate growth remains real and ADR is increasing at a higher rate than inflation.