The outlook for 2016 and 2017 is positive thanks to a generally improved economic context. Specific situations make it different from one country to the next as hotel supplies are restructured with the arrival of new competitors, and merger and acquisition operations make a comeback. Major events also yield an impact on activity at hotels.
For the second consecutive year the RevPAR for hotels in the European Union grew significantly in 2015: +4.8% for the RevPAR excluding taxes, after +3.8% excl. taxes in 2014. These two years followed slower growth (+1.9% in 2013) after the sovereign debt crisis. The improvement is thus incontestable. While the rebound in the occupancy rate explained much of the renewed growth in 2014, the increase in average daily rates strengthened the sustainability of growth in the RevPAR in 2015.
This improvement may be observed throughout European countries. It is particularly strong in Southern Europe (Italy, Spain, Portugal), which struggled during the debt crisis, and in Central and Eastern Europe. The global momentum is thus clearly favorable despite the stagnation of France and the impact of the terrorist attacks on several major European markets (Paris and Ile-de-France, Brussels, London, etc.).
This renewed hotel activity relies on a macroeconomic environment characterized by marked increases in GDP and household consumption in the different economies of the European Union. These changes generally go hand in hand with a drop in unemployment that in a context of low inflation leads to improved purchasing power for the multitudes and drives household demand for leisure activities. The brightening economic horizon enables a reboind in corporate investment, another precursor to renewed business activity. The drop in the euro improves the price competitiveness of exports from countries in the area and also, more specifically regarding the tourist sector, European destinations for clientele outside the Euro zone. At the same time, weakened oil prices limit the negative impact of exchange rates on energy costs and lightens expenses for companies.
Markets with varying dynamics
From a hotelier’s point of view, Europe has markets with contrasting dynamics. In Spain, further to a cleaning phase for its supply that had grown exponentially prior to the crisis, the situation currently appears to have reached a new balance. Renewed demand for accommodations had a direct and positive impact on occupancy and now guarantees growth in average daily rates. The destination is characterized by its price competitiveness that allows it to capitalize on the European rebound while attracting clientele who are turning away from destinations in North Africa or the Middle East due to security issues. Its domestic economy is likewise making a return, with a drop in unemployment (after reaching very high levels), which amplifies the rebound of global demand. And yet, after double digit growth in hotel revenue in 2015, the effect of recent “technical” catching up should lighten in 2016 and 2017.
The United Kingdom constitutes a market with very high occupancy levels for all destinations and hotel categories, which are distinctly higher than the European standards. The development of chains is rapid there with close to 45,000 additional rooms between 2010 and 2015, with no crowding out on the independent supply since the global supply grew by 50,000 on the same period. Macroeconomic forecasts establish a scenario that is in keeping with trends. In terms of hotel cycle, the United Kingdom is ahead of other European destinations, with 5 years of growth in its RevPAR, a stronger supply dynamic, and growth in performances that is now supported by secondary markets, while London cools off. Results in the British capital should stop feeling the impact of the boosting effect (particularly in terms of prices) of the supply’s modernization prior to the 2012 Olympics. And yet, improved real economic European and British contexts make it possible to forecast a change that remains favorable to the market in 2016.
Germany also stands among the most dynamic markets. Occupancy rates, which were behind by 5 points or more with respect to the European average in the not so distant past, are now at the level of the standards of the European Union. And yet, growth in the supply was particularly strong with close to 70,000 additional rooms in 5 years, 40,000 of which were at corporate operated chains and 30,000 for independent properties, highlighting the German market’s rise on the international tourist scene. The midscale is expected to be dynamic, due to effect from saturation of other segments on major markets. Average daily rates pick up the relay to provide growth, but increases in prices remain historically moderate in Germany: even during an expansion phase in the cycle, they are restrained by supply growth.
In Italy the global hotel supply is stable on 5 years but is rising in range. Economy and midscale categories are losing family properties while the supply on the upscale segment is growing. Chains remain minimal in this supply that surpasses one million rooms and is dominated by independent properties. Hotel activity was nonetheless remarkable in 2015. Italian hoteliers benefited from renewed activity generated by different exceptional events, particularly the Universal Exposition in Milan and the Venice Biennale. Results in 2016 will not benefit from the support of such events and will, instead, suffer the comparison to a formerly high base despite the positive effects of ongoing improved economic fundamentals. Moreover, after years of decreasing average daily rates, the price competitiveness of hotels on the Boot have improved significantly. While results in 2016 should benefit from the comparison with an exceptional 2015, trends in the mid-term are mostly favorable, particularly since the country will indirectly benefit from the recovery underway on other markets, particularly Spain.
Growth of a new alternative supply
In France, the supply of corporate chains is old and the maturity cycle of this market is among the most advanced in Europe. Recently the supply stagnated, although the last two years were characterized by a slight recovery in growth of the supply, particularly independent. Changes in the midterm led to supply shortages compensated by operators of new accommodations. The emergence of these properties had a non-negligible impact on hotel performances. Tourist residences thus developed products adapted to the urban hotel demand. But the arrival of shared housing has just led to a redistribution of the deal in commercial accommodations. The competition from a new player like Airbnb is perceptible on major markets (50% of Airbnb’s supply in France is concentrated in Paris, Lyon, Marseille and Nice), particularly on the luxury and even more so on the budget segment. However, its impact on the growth of hotel performances should be felt in the midterm, particularly in terms of average daily rates, rather than in the short term. Airbnb’s impact should indeed be fairly limited in a context of recovery in 2016 and 2017 in Europe.
The impact of terrorist attacks on France
A factor of uncertainty weighing on France lies in the consequences of the two waves of terrorist attacks that hit in January and November 2015. They affected a hotel sector that was already doing poorly amidst the recovery in Europe. The year 2015 ended with a third year of stagnation in RevPAR excl. taxes (+0.1% in 2015, following -0.7% in 2013 and -0.2% in 2014 excluding taxes due to the 3 point increase in the VAT). Paris and Ile de France were particularly affected. While the Provinces were able to sustain steady growth at the beginning of the year and during the summer period, the end of the year was more delicate. Initial estimates in January 2016 allow us a glimpse of the results that continued to decrease in 2015, particularly in Q1 2016. And yet, perspectives for 2016 and 2017 are not necessarily negative. By observing similar unfortunate events of the past (9-11, attacks in London, Madrid), completed by surveys with hotel professionals, the consequences of the attacks should fade in the first half of 2016. At the end of the year, in November and December, results will be compared to a very poor situation, thereby swelling annual growth in 2016.
Finally, by hosting the UEFA Euro 2016, France should improve its average daily rates. The analysis of the impact of this type of athletic events (World Cup 1998 in France, Olympics in Athens in 2004, European football championship in Switzerland and Austria in 2008, in Poland and Ukraine in 2012) reveals, beyond the specifics of each event, consequences that are fairly similar in terms of hotel performances: significant impact on prices during the event, together with by a drop or stagnation of arrivals due to a crowding out effect. This drop in occupancy is nonetheless compensated over the year by a “halo effect”, or postponement of arrivals / occupancy to other months of the year, as “traditional” clientele prefer to come just before or after the event.
Despite dangers and uncertainty; there is a favorable outlook for 2016 and 2017. The improved economic context is widespread, but each country is experiencing it at a different rate. The hotel supply is being restructured with the arrival of new competitors, and merger and acquisition operations are picking up after years of calm. Major events can play a decisive role for activity at hotels that may be positive or negative. In this context, MKG’s hotel activity forecast for 2016 and 2017 (France, Germany, United Kingdom, Spain, Italy, Netherlands, Belgium, by segment and for capitals) offer essential visibility regarding the structural trends of future hotel activity in Europe.
This article is an extract from the Hospitality Forecast Report, available on our on-line store !
Already signed up? Already signed up? Already signed up? Already registered? Login!