The improving economic outlook across the Eurozone and strong demand from international tourists is set to propel hotel trading across most cities in 2018, according to PwC’s latest European hotels forecast “Best placed to grow”.
PwC’s seventh Euro Cities Hotel Forecast says Europe welcomed 671m overnight visitors in 2017, with international tourism arrivals delivering 8% year-on-year growth. PwC also analysed the prospects for the hotel sector in 12 national or regional capital cities* for 2018-19 and concluded that the majority of cities, except Frankfurt and Zurich should achieve revenue growth in 2018, with all cities expected to see further growth in 2019.
Measured by Revenue per Available Room (RevPAR) Porto tops the city growth table in 2018 with 10.3% RevPAR growth forecast followed by Amsterdam (7.1%) and Lisbon (7%), Prague (6.8%), Milan (3.9%), Paris (3.6%), Geneva (2%), Rome (1.8%), Berlin (1.3%) and London (0.6%).
Looking to 2019 and measured in local currency, Lisbon (6.5%) and Paris (6.4%) lead in growth terms followed by , Porto (5.2%), Frankfurt (4.3%), Amsterdam (3.5%), Prague (3.4%), Milan (2.6%), Berlin (2%) and London (1.9%).
Growth is being driven by a robust Eurozone economy and travel demand with the UN World Tourism Organisation forecasting a 4-5% growth in global tourism for 2018.
Commenting on the latest forecast, Liz Hall, head of hospitality and leisure research at PwC, said:
“Continuing global and regional economic recovery should continue to support strong leisure and business demand for travel and hotels. 2017 was a record year for travel and we remain cautiously optimistic and forecast further RevPAR growth in most of the cities analysed. With occupancies already high, we expect ADR gains to drive much of this growth.
“Events also remain a key catalyst for hotel trading with some large fairs and events taking place over the forecast period in London, Frankfurt, Paris and Amsterdam and expected to attract large numbers of visitors.
“European cities will be looking to capitalise on Brexit. With the European Banking Agency preparing to relocate and the European Medicines Agency generating around 36,000 nights a year, other cities will hope to benefit from corporate relocations out of London.
London and Amsterdam hotels are forecast to to have the highest occupancies of 82% in 2018 despite high supply additions. Prague (81%) is close behind with Lisbon (78%), Berlin (77%) and Porto (77%) all with occupancies in the high 70s. In 2019 Prague joins London to have the joint highest occupancies (82%) with Amsterdam next (81%) followed by Lisbon (79%). Paris is forecast to be the big mover, overtaking Porto and Berlin.
Highest Average Daily Rate (€)
In 2018, the most expensive city is currently Geneva (€242) followed by Paris (€236), Zurich (€197), London (€162) and Amsterdam (€152) completing the top five. Prague (€93) is the most economical, followed by Berlin (€96) and Porto (€101). In 2019 all cities should see further ADR growth with Lisbon (€128)
overtaking Frankfurt (€125).
Highest RevPAR (€)
Paris is forecast to top the RevPAR rankings in both 2018 (€176) and 2019 (€188). Geneva (€170) is second place followed by Zurich (€143), London (€133) and Amsterdam (€124). Paris’s RevPAR remains around €100 higher than Berlin, Prague and Porto at the other end of the table.
Hotel investment and deals
European hotel deal activity rose by 11% in 2017 reaching €21bn, surpassing the record level achieved in 2015. The growth was led by the UK and Spanish markets, accounting for 30% and 25% of total European transactions respectively. Germany accounted for 11% of deals, down from 27% the previous year, followed by Italy 5% and France 4%.
In 2018, we could see an increase in outflow of Chinese capital from the European hotel market as investors rebalance their portfolios amidsts regulatory and financial pressure. PwC also anticipates deal activity will be affected by significant changes in the ownership structures of mega hotel companies.
Sam Ward, UK hotels leader at PwC, added:
“Hotel investment reached record highs in 2017 driven by a resurgence in UK hotel investment activity and record levels of investment in the Spanish market. In total the UK and Spain accounted for more than half of total transactions. Overall, the movement in transaction volume shows a strong correlation with RevPAR growth which more than doubled last year.
“2018 has already seen significant activity to date and with continued international interest in the European market, we anticipate hotel transactions to moderately increase this year.”