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What are the prospects for European MICE destinations?

The Covid 19 pandemic has not spared the business tourism sector, which is generally the first to announce the beginnings of a transformation. The unprecedented episode that Europe and the world are going through is no exception since trade fairs and congresses were mainly the first to interrupt their activities. In terms of MICE destinations, Europe is the most dynamic, far ahead of North America and Asia.

This is why the "Old Continent", which is the most attractive in the choice of tourist and congress destinations, must restart the business tourism machine, a real generator of economic activity. In the top 10 host cities for conferences and trade fairs, published each year by the ICCA (International Congress & Convention Association), 8 destinations are European; starting with Paris, followed by Lisbon, Berlin, Barcelona and Madrid. This dominance is a force to diversify the sources of activity and allow a revival in Europe at a time when long-haul flights are still mostly suspended.

In France, in 2018, the sector represented 32 billion euros in economic benefits according to a study commissioned by Atout France, the OTCP, the Lévénement association, Unimev, the Banque des Territoires, the DGE as well as the Ministry of Economy and Finance and the Ministry of Europe and Foreign Affairs. In 2019, according to Atout France, the branch invested 450 million euros.

The business tourism branch is all the more important as it directly affects several sectors upstream and downstream of its activity: Transporters (planes, trains, buses, but also taxis and private cars), commercial accommodation as well as subcontractors such as caterers, sound and decoration professionals, etc.; not forgetting the destinations themselves which benefit from the presence of visitors who frequent the places where they go out and visit.

What is the impact of the Coronavirus crisis on major European business destinations?

Paris, La Défense and Paris Nord Villepinte stopped in their tracks

Regarding hotel supply, after stagnating over the last two years, the Paris metropolitan area's integrated chain offer (INSEE scope) picked up again in 2018 with a net increase of +1,399 rooms over the year (+1.4%).

Officially born in 2016, the Metropolis of Greater Paris aims to maintain the destination among the most attractive in the world. The project covers an area with a population of 7 million and will ultimately give a strong impetus to the development of public transport, enabling the development of new destinations in Île-de-France thanks to shorter journey times. This is notably the case for the Saclay plateau, which will be significantly closer to Paris.

In addition, the region is home to 22 exhibition and convention sites that will generate €5 billion in economic benefits for the destination in 2018. Travellers coming to Paris Region on business, whether to attend conventions or trade fairs, generated 4.1 million overnight stays, 64% of which were by international clients.

After two difficult years (2015 and 2016) marked by attacks, which remain in the collective memory, and 2018 marked by the yellow vest crisis, which was prolonged in 2019; performance continued to improve despite everything. But the health crisis of 2020 put an end to this trend with performances that looked promising in the first two months of the year. Indeed, in Paris, the RevPAR in January 2020 reached €106.71 excluding VAT and €91.35 excluding VAT in February, two values that were then higher than in January and February 2017 and 2018.

Hoteliers in the La Défense district, which is heavily irrigated by business tourism, were also on a positive trend, with performances in January 2020 higher than those in January 2019, reaching a RevPAR of €89.60 excluding VAT compared to €84.24 excluding VAT in 2019.

The holding of biannual events in 2019, such as the Paris Air Show at Le Bourget, enabled accommodation providers to increase their rates after a less satisfactory year in 2017. Once again, January 2020 announced the start of a great year with a RevPAR of €58.99 excluding VAT compared with €57.04 excluding VAT in 2019.

Lisbon, betting on business tourism

Culturally rich and very attractive in terms of price-quality ratio, Lisbon has an excellent image in leisure tourism as well as in business tourism. In fact, the capital of Portugal benefits from the presence of various infrastructures and high capacity venues to host business clientele. In order to stimulate the economy, Lisbon and its tourism sector have made a focus on this type of clientele and privatizations allowed the city to climb in the ranking of top cities for organizing international events published by the ICCA (International Congress & Convention Association). Nowadays, Lisbon gathers about 80% of the income from the MICE sector in Portugal. With the combination of culture, low prices, historical heritage, architectural infrastructures and very favorable weather, Lisbon has managed to attract leisure as well as business tourism.

The port of Lisbon welcomed 521,000 cruise passengers in 2017 and the Lisbon Humberto Delgado airport handled 29 million air passengers in 2018, up 8.9% from 2017.  Over the past three years, the airport gained more than 9 million passengers. As a result of this recent surge, the creation in Montijo of another civil airport targeting low cost companies is expected to enable Lisbon’s airports to handle 50 million passengers after its projected opening in 2022. Meanwhile, a new 13,000 m2 cruise terminal was inaugurated at the end of 2017. The transport network is also expanding, with the start of works to extend the green metro line between Rato and Cais do Sodré to form a circular line in the city centre, expected for delivery in 2021. In addition, a 2 km extension from São Sebastião to Amoreiras and Campo de Ourique has been approved.

Regarding hoptel supply, after stagnating in 2017, the Portuguese capital recorded a significant increase (+7.9%) in its chain supply in 2018.

The impact of the arrival of new business customers in the destination is clearly visible from 2017 onwards, where average prices have risen sharply, from an average of €49.95 excluding VAT in 2016 to €84.68 excluding VAT in 2017. In addition, the move upscale of the hotel sector is also a factor in price increases. As in Paris, the first two months of 2020 launched a year of growth, with RevPAR at €59.60 excluding VAT compared with €45.99 excluding VAT in January 2019 and €60.60 excluding VAT in February 2020 compared with €51.28 excluding VAT in 2019. Thus occupancy rate and average prices allowed to draw revenues upwards.

Berlin booming

Berlin is a major hub. In 2018, the number of arrivals at Schönefeld airport increased by 11.2% to 34.7 million, thanks to international arrivals, which increased nearly by 11% (to 25.5 million passengers).

In the last years, a dramatic shortage in office space appeared in Berlin. Between 30,000 and 40,000 people move to Berlin every year to work for start-ups but also for multinational companies. The office vacancy rate dropped to 2% in 2018 from 10% a decade ago. Currently at least between 500,000 and 600,000 m² new offices are under construction, but this might not solve the problem since these are almost all totally pre-let, which is favourable to future hotel demand.  

In 2018, Berlin has for example seen the expansion of its business park in the 2nd district, notably rented to Zalando (42,000 m² for headquarters). A new 84,000 m² shopping centre should also be constructed, as well as 60,000 m² of hotels. On the cultural side, the new City Palace in downtown Berlin is expected to host non-European collections as well as a library part of the Humbolt University by the end of 2019. An extension of the existing metro line U5 by three stations is done to link with the U55 line at the Alexanderplatz station. This project aims to ease the access to public transport that travels towards the East of the capital and is scheduled to be delivered in 2020.

Berlin hosted 45,650 chain rooms as at January 1, 2019 and saw its chain supply grow by 5.0% in 2018, representing a net gain of 2,159 rooms. The chain supply in the capital continues, therefore, to increase, after a decline in 2015 and 2016 which followed a strong development during the past decade: the number of chain rooms available in Berlin has almost doubled in 10 years.

The Berlin RevPAR grew by +7% in 2018, after a more moderate growth of +2.2% in 2017. This increase was driven by the joint rise in OR (+1.6 point) and in ADR (+4.8%). The most dynamic segment was the midscale segment (+7.8% RevPAR growth), but all segments performed well, exceeding 6% increase over the year. The upscale segment also recorded high growth, thanks to the jump in OR (+2.5 points): +6.8% RevPAR. In a context of strong supply growth, RevPAR in economy hotels was driven up by the increase in ADR, the chains maintaining a high-quality level, while OR stagnated (RevPAR +6.2%).

Barcelona facing tourism bashing

The city is the other leading economic hub in the country. In 2018, the airport handled more than 50 million passengers (+6.1% compared to the previous year). In addition to the major business sectors including finance, international trade, media and the arts, the city is also one of the main ports on the Mediterranean for commercial traffic, as well as for the cruise industry.

Barcelona established itself as one of the major destinations for urban tourism in Europe. With nine buildings on UNESCO’s World Heritage list, the city has a rich heritage and culture that enable it to attract increasing volumes of leisure travelers. In fact, a buoyant demand enabled leisure tourism to account for 70% of hotel demand in 2018, up from 50% in 2014. This phenomenon is also partly explained by the effects of the 2017-2018 constitutional crisis on the demand for conventions and congresses (MICE), and corporate guests.  Indeed, the referendum and subsequent troubles dented business tourism throughout 2018.  The recent surge in supplies of private rental platforms (AirBnB, HomeAway…) may have reinforced this downtrend, while causing nuisances for residents (noise, rising rents…). This phenomenon has prompted a political debate on private rental platforms that has sparked a larger conversation on whether to restrict tourism in Barcelona. Due to these concerns, the municipality has passed a law in 2017 to freeze the construction of new hotels in the city centre and the licensing of new tourist accommodation rentals. Projects that were already in the pipeline when this law was passed were exempted from this freeze.

Despite these recent regulatory developments, the hotel chain supply still grew by a moderate 1.4%, reaching 316 chain hotels and 36,785 rooms as of January 1, 2019.

As business demand fell in the wake of the referendum, Barcelona’s hotel performances decreased in 2018: RevPAR for all categories combined declined by 3.4%. Hoteliers had to adjust their rates (-3.0% in ADR) to contain the decline in occupancy rate, down only by 0.3 points on average. To be noted, despite this bearish environment the economy and midscale segments recorded significant occupancy growth: +2.1 and +0.6 points, respectively. Only the economic segment managed to achieve positive performance growth in 2018 (+3.0% RevPAR), while all the other categories experienced declines. The upscale and luxury segment was the most affected: its RevPAR fell by 6.5% year-on-year.

The Catalan capital, which has not deviated from the trend in Europe, was up in January 2020 compared to January 2019 +4.2% RevPAR thanks to a OR stable at +0.2 point and an average price up +3.8%. The cancellation of the Mobile World Congress scheduled for February 24-27 directly impacted the occupancy rate and average prices: -11.6 points in the occupancy rate and -7.5% in the average price compared to February 2020.

Madrid culture and business

The Spanish capital Madrid is home to many large corporations, including a large proportion of multinational firms. The city’s economy is mostly based on the service sector (financial, banking, business services) and logistics. It is one of the country’s key gateways with the Madrid-Barajas airport which recorded 57.9 million passengers in 2018 (+8.4% from 2017), 28% of which were domestic arrivals and 72% international arrivals. Madrid also has a large convention centre, the Feria de Madrid, which has biannual activity with the odd years being the strongest, which is reflected in arrivals and hotel performances recorded in the capital. In 2018, the urban renewal project “Madrid Nuevo Norte” has finally been given a green light by authorities after 25 years of paralysis. This major project aims to install a new financial centre –and some residential zones– right next to the Chamartin train station, which is west of the airport and north of the centre of the city. It is estimated to cost more than 18 billion euros; 241 700 new jobs are expected. However, regional authorities and interested parties are still scrambling to complete the necessary bureaucratic procedures.

The Madrid hotel market got off to a good start in 2020 with RevPAR reaching €77.77 excluding VAT in January (+3.4% compared to January 2019) and €91.46 excluding VAT in February (+4.5% compared to the previous year, this time driven by a 6.1% increase in average prices).

Vienna, in the centre of Europe

The capital of Austria with both artistic and intellectual cultural heritage, has seen great names in music, art and science, such as Mozart, Klimt and Sigmund Freud, come to life. The many imperial palaces, museums and historic residences give the city a strong appeal to leisure visitors. In addition, the city benefits from the quality of its infrastructures such as its river port, its motorways providing a link towards Germany, the other countries of Central Europe, Italy and the Balkans.

The Viennese market continued its momentum with an improved performance in the first 2 months of the year compared to 2019 during the same period. In January: +4.7 points of OR and a RevPAR up +16.3% to €64.34 excluding VAT. February: RevPAR up 4% (€61.41 excluding VAT) and OR up 2.3 points.

In London, will Brexit slow down Europe's most dynamic financial centre?

London’s hotel activity is driven by its strong economic dynamic, mainly related to its role as a global financial centre. In 2017, the British capital city welcomed 19.8 million visitors, who spent 114 million nights and £13.5 billion in the city. Compared to the levels seen in 2016, these figures represent increases of 4.0%, 2.7% and 14%, respectively. However, data for the first three quarters of 2018 offers a more negative outlook. Indeed, when contrasted to the same period in 2017, the number of international visitors, the number of total overnights and the millions of pounds spent by international visitors are down by 6.7%, 7.1% and 12.7%, respectively. Notwithstanding this recent downturn, the capital of the UK is still the country’s largest market. In 2018, it gathered 51% of the tourist arrivals, 40% of total overnights, and 55% of total touristic expenditures.

London’s largest airport, Heathrow Airport, welcomed 80.1 million passengers, reaching a new high with an increase of 2.7% with respect to 2017; 67% of this passenger traffic was composed of leisure travellers and 33% of business travellers, while connecting passengers represented 30% of total traffic. A third additional runway for Heathrow Airport has been approved by both national and local governments. It is estimated that this project will cost £14 billion and will be delivered by 2026. Nonetheless, it should be noted that this airport expansion is under judicial review, thus it is still possible that it could be turned down by the UK’s High Court. London City Airport, located in London’s Docklands, is also scheduled to be expanded. Specifically, £480 million are expected to finance an increase in capacity of this airport by 2 million passengers. It is estimated that this airport will be able to serve 6.5 million passengers when expansion works are delivered in 2025. The aim of London City airports’ expansion projects is two-fold. On the one hand, it is aimed to serve a growing business clientele who does not want to be stuck in traffic when travelling from the airport. On the other hand, the increase in capacity is expected to allow airlines to improve their flexibility and scheduling options. Additionally, as part of a remodelling of the terminal itself, a 260-key hotel is planned to be built at the airport entrance.

The beginning of the year looked timid on the British island in the turmoil of Brexit: +2.5% RevPAR in January 2020 (£108.02 excluding VAT) and -2.2% in February (£114.63 excluding VAT) with an OR stable at +0.5 points in January allowing prices to be maintained at +1.7%; however the fall in the level of occupancy in February (-2.1 points) pulled performance downwards.

Prague, the sleeping beauty

Prague concentrates more than one third of tourist overnights in the Czech Republic and 90% of international tourists.

The Czech capital hosted 119 chain hotels and 15,231 rooms as of January 2019, slightly increasing (+2.0%) from early 2018. The capital represents two thirds of the national chain supply in terms of capacity.

The year 2018 was marked by several transfers among hotel chains as well as closings in the view of renovations.

Demand in Prague followed the dynamics of the national market, as the Czech market is highly concentrated on its capital. The city’s OR grew by 0.4 pts, while the ADR receded by 0.5%. The effects of these two developments almost cancelled each other out when it comes to the city’s RevPAR growth. This last figure grew by a scant 0.1% in 2018.

There are numerous other large-scale urban development and renewals projects envisioned for the future. The area around Wembley Park is set to be developed with 5,000 new residential and office units by 2024. This project is estimated to come at a cost of £1.1 billion. A £9 billion transformation of the zone around Battersea Power Station is planned for 2025. This project of urban restructuring involves the construction of apartments, hotels and offices over an area of over 740,000 sqm. Apple, the complex’s anchor tenant, is expected to move its London headquarters to the former power station in 2021. A luxury Art’otel by PPHE Group is expected to open at the power plant itself by 2022.

In 2018, the occupancy rate of London hotels recorded a slight increase of 0.9 point; this increase was stronger than the one recorded in 2017 (+0.2 points). This positive result was mainly driven by the midscale segment, which experienced a surge of occupancy of 2.3 points. In addition to that, in 2018, there were significant rises in average prices in the upscale segment (+2.1%), while the ADR of the midscale category rose by 0.9%. All categories combined, London achieved a RevPAR growth of 2.6%, reaching £124.1 (incl. VAT). Performance growth in 2018 was thus driven by the midscale (+3.6%) and upscale segments (+4.0%) and slowed down by the economy segment.

Vienna, a major European business tourism city, is a major international meeting place. Moreover, various world organizations settled here, such as the International Atomic Energy Agency (IAEA), the United Nations Industrial Development Organization (UNIDO) and the Organization of Petroleum Exporting Countries (OPEC). These organisations and the various business tourism sites, including Vienna's 3 congress centres, make the city a centre of MICE activity. Indeed, the Austrian capital is ranked among the firsts in the ICCA ranking of cities hosting international congresses (190 in 2017), events that generate strong activity in hotels.

The city is currently undertaking a renovation and extension project of its existing metro network, in order to improve traffic conditions. The works which are distributed in several phases, involving the temporary closing of some metro stations, are expected to end in 2026. Other projects supporting the development of Vienna’s business infrastructures are in progress in the Erdberger Mais / Aspanggründe area and in Donau City.

Despite a declining occupancy rate, RevPAR grew by 9% in January 2020 compared to 2019, or CZK 844.25 (approximately €31.63 excluding VAT). It is the same trend in February with an increase of +12.1% compared to last year to reach CZH 795.82 (approximately €29.81 excluding VAT).

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