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.
And, while security concerns saw mixed fortunes for some city destinations in 2016, overall it was another record breaking year for European tourism with 12m more visitors and a total of 2.8bn nights spent in tourist accommodation. An influx of tourists from the US and a booming Asia should drive hotel trading in 2017, with the majority of key city destinations likely to experience continued growth.
PwC’s sixth European Cities Hotel Forecast reviewed the 2016 performance and 2017-18 prospects for 17 European cities, all national or regional capitals for finance, commerce and culture. The 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.
Growth is being driven by continued economic growth and travel demand with the UN World Tourism Organisation forecasting a 2-3% growth in global tourism for 2017.
Commenting on the latest forecast, Liz Hall, head of hospitality and leisure research at PwC, said: “Despite general elections across Europe this year the outlook for hotels in Europe is largely positive. 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 travellers’ 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%).
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.
The UK outlook
Our 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.
We expect 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.
Our latest forecast for the UK regions for 2017 and 2018 shows that despite a slower start outside London in 2017, hoteliers are forecast to see RevPAR growth of 3%, taking RevPAR to £54 driven almost exclusively by an improving ADR to £71, the highest ever in nominal terms.
Occupancy is forecast to remain high at 76% with growth muted in both 2017 (0.1%) and 2018 (0.2%). In 2018 we anticipate RevPAR growth slowing to 1.7%, supported by a 1.5% ADR improvement taking rates to £72.
This year is expected to see 20,000 rooms added to the UK hotel supply up from 16,000 in 2016. For the UK regions, overall hotel capacity could expand by 12,000 rooms in 2017, meaning a 2.4% net rise, one of the highest growth increases since 2008.
Liz Hall, said: “The effects of a weaker pound were finally felt by hospitality businesses towards the end of 2016 with inbound holiday tourism soaring. Hotel RevPAR in London increased by 14.3% year-on-year in December which according to STR Global data is the biggest year-on-year RevPAR growth since the 2012 Olympics. It was a challenging year until then. We expect inbound holiday growth to continue in 2017, as the capital provides improved value for money. Staycations from UK residents may also lift performance as some opt against going overseas as an expected squeeze on living standards begins to bite.”