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Analysis

2014 in Europe: Recovery in the North and South

As the first signs of economic growth were being felt in several European countries after some very difficult years for some, the hotel activity has regained the road to recovery. The industry thus ended the year with 3.8% growth in its Revenue per available room. While most European countries are on a growth trend, the renewed activity is driven by strong growth rates in Southern Europe.

Europe’s hotel industry accelerated growth in 2014. After finishing 2013 well, countries in the European Union are ending 2014 with new growth by 3.8% in their Revenue per available room (RevPAR). Growth was marked this year by the increase in average daily rates, which had tended towards more stability in 2013, and relied on the constant increase in arrivals.

The occupancy rate came closer to 70%, and gained 1.6 points in comparison with the previous year. This data expresses a recovery of hotel chain occupancy at most destinations. In Southern Europe, Greece, Portugal and Spain have recorded the strongest growth in occupancy rate. The price competitiveness in these countries that suffered the impact of the financial crisis in 2008 together with their appeal to foreign clientele, particularly in a tense global geopolitical and economic context, have fully benefited their tourism and hotel industry.

While growth in occupancy rates have been well balanced across the different hotel categories, it nonetheless remains higher in the upscale where occupancy rate rose by 2 points. This is due to the fact that the upscale segment depends more on the presence of international clientele than on the activity of the domestic market, which is still recovering from the impact of the economic crisis on the purchasing power of households and companies, unemployment and growth. The Budget segment continued a downturn in 2014 (-0.2% RevPAR), the supply being smaller and more concentrated in suburban areas and in France, where the economic difficulties remain very present among domestic clientele.

The average daily rate regains a growth track

Still stagnant in 2013, the average daily rate at Europe’s hotels began its recovery in 2014. It progressed by 1.4% to almost 90 euros excluding taxes. The number of arrivals, especially foreigners at most destinations, has allowed hoteliers to raise their rates. Renewed growth in the average daily rate is also the result of the beginning of an economic recovery in certain European countries where domestic travel is gradually less impeded by weak purchasing power.  The GDP growth observed in some European countries progressively allows companies and households to increase the budget allocated for their professional and personal travel, although the trend is not yet widespread.

Southern Europe on a rebound, Northern Europe continues to progress

Almost all European countries posted growth in hotel indicators. Driven by countries in the north of the continent last year, this year growth was stronger in the south, where destinations posted strong progress in their indicators. Generally speaking, they are gathering the fruits of earlier adjustments and their strong competitiveness in pricing, which allows them to accommodate many events to support their demand, while individual clientele are also making a return to these markets. Greece and Portugal come out at the top of this recovery with double-digit growth in their RevPAR, by 24.4% and 10.6% respectively, while they are barely recovering from the financing plans from the European Union and the IMF. Financially attractive to foreign clientele, especially from neighboring countries, the two destinations have fully benefited from the dynamism of international arrivals, while the beginning of renewed activity may also be felt on the domestic market. In the same region, Spain also ended 2014 with new record tourist arrivals to the benefit of the hotel industry. In addition to the recovery on the sector that began last year, activity in the country was boosted by several international sports events, such as the Yachting World Cup and the World Basketball Championship.

Renewed activity may also be observed in Central Europe, where Hungary stands out with double-digit growth in its RevPAR. Driven by the democratization of airline connections to the country and its competitive pricing, international clientele have flowed into the destination. Several major events have also put pressure on demand, such as the European women’s Handball Championship. Hospitality indicators are also up in the Czech Republic and Poland, where the sector appears to have regained a balance after partially absorbing the hotel supply created for the European Football Cup 2012.

The hotel industry in Northern and Western Europe showed its resistance with indicators up in most countries. The United Kingdom once again posts the highest occupancy rate on the continent, close to 80%, and has seen its RevPAR increase by 7% on the year. Whether it is in terms of supply, occupancy or average daily rate, the country’s indicators progressed since it hosted the Olympics in 2012. In Germany, the success of the major trade fairs end expos together with the growing popularity of the country as a weekend destination both benefited the hotel industry, which saw its RevPARs increase by 4.1% across the year. Benefiting from dynamic business activity and a full events calendar, the other destinations in the region also contributed to European growth, like Austria (+5.7% RevPAR), Belgium (+2.4%) and the Netherlands (+3.6%).

The only shadow cast over Europe is on France, which lags behind the recovery observed among its neighboring countries. With a RevPAR down by 0.2%, although occupancy rates have stabilized thanks to the presence of foreign clientele, hoteliers have not been able to improve their average daily rate due to the 3 point increase in the TVA that has been applied to the hospitality and catering industry, which they partially reabsorbed. Considering this strong fiscal impact, the structural trend in France is not as negative as it may seem.

Driven by the rebound of Southern Europe and a trend that is now underway in Northern Europe, all of Europe’s hotel industry made a comeback in 2014.

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