European Hotel Values Experience Modest Rise in 2023, Falling Short of Pre-Pandemic Levels

The annual European Hotel Valuation Index (HVI) published by global hotel consultancy HVS this week revealed that hotel values across Europe saw a modest increase in 2023. Despite this uptick, values failed to reach pre-pandemic levels, hovering around 97% of 2019 figures. This stability in values reflects the ongoing recovery from the pandemic and a sustained interest in travel, which has kept average room rates robust.

Julia Dzerkach, an associate with HVS London and co-author of the report, noted that although there were marginal gains in value due to revenue and profit recovery, challenges persisted in valuation parameters. Factors such as elevated debt costs in the first half of 2023 and ongoing macroeconomic challenges contributed to a subdued market for hotel transactions, leading to a wide bid-ask spread for sales and acquisitions.

In terms of regional variations, hotels in cities like Paris, London, Zurich, Amsterdam, and Rome remained highly valued across Europe. Athens experienced the strongest growth in value, driven by robust RevPAR and investor interest, while other cities like Florence, Dublin, and Brussels also saw moderate value increases.

However, only a handful of cities including Amsterdam, Athens, Dublin, and Paris managed to return to pre-pandemic value levels, largely due to strong average rate performance. Conversely, markets like Berlin, Hamburg, and Frankfurt in Germany witnessed declines in hotel values, attributed to slower recovery in demand generators such as corporate travel and event business.

Looking ahead, Clemence Sennavoine, another associate at HVS London and co-author of the report, expressed cautious optimism for 2024. Anticipated stability in price changes, coupled with potential declines in interest rates and continued RevPAR growth as demand fully rebounds, suggest a more favorable outlook for the hotel market.

Despite global uncertainties, hotel investment remains attractive, with investors adopting a 'wait and see' approach. This stance has kept substantial capital available, reaffirming hotels as a strong investment option and a hedge against inflation.

In summary, while European hotel values experienced a modest increase in 2023, challenges persist in returning to pre-pandemic levels. However, with improving market conditions and sustained investor interest, the outlook for 2024 appears promising for the hospitality industry.