The ongoing war in Iran will lead to reduced travel demand in the Middle East as business pivots to Europe along with increased intracontinental travel from Europeans themselves.
The usual suspects likely will win out, notably Southern Mediterranean markets, as well as the Turkish Riviera, according to participants in a recent webinar hosted by business advisory HVS London and legal firm Bird & Bird titled “Hotels in 2026. Feast or famine? Whither the recovery?”
Aoife Roche, regional vice president, Europe, Middle East and Africa, STR, CoStar’s hotel-analytics division, said the signs are already present.
She said occupancy in Europe in year-on-year terms for March 2026 increased by 1% to 62%, and in Northern Africa in the same period it increased by 6% to 59%.
The Middle East is a different picture, although there are budding signs that the market is returning slowly. For the same month compared with March 2025, Middle East occupancy fell 11% to 65%.
She added the numbers suggested a potential for Europe to benefit from diverted traffic due to the conflict, and said hoteliers could draw parallels with the current situation and the COVID-19 pandemic.
“We do know that demand will always rebound,” she said.
Guests and investors are not leaving the sector.
“In good times people want to travel, and in bad times people need to travel,” said Jack Rice, relationship director, hotels and hospitality, Barclays Bank.
Tina Yu, partner, KSL Capital Partners, said firms such as hers are believers in the long-term value of the sector.
“It’s the only sector we invest into. … This type of disruption and volatility is what creates opportunities for investors to pick the right winners,” she said.
Roche said March saw occupancy plummet in Gulf Cooperation Council countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
Occupancy had already fallen in February in year-on-year terms, by approximately 5%, she said. In March, the metric fell by more than 30%, with the United Arab Emirates feeling the brunt.
Bahrain, Roche added, is the market currently with the smallest occupancy, with March seeing that metric reach only 17%. Kuwait fared only a little better at 23%.
Oman in the same month saw occupancy of 23% while the UAE was at 36% and Qatar was at 47%. Only Saudi Arabia managed to see occupancy above the halfway mark at 57%.
In Saudi Arabia, it was the Holy Cities and adjacent markets that did the best, along with the city of Damman. In the kingdom, there was occupancy pickup in most markets for the week ending April 4, but improvements were slight, with Roche stating this demand boost is a domestic one.
Eureka Europe
In Europe, business on the books shows that markets such as the Turkish Riviera, Budapest, Copenhagen, Sardinia, Barcelona and Malta are set to fare admirably as vacation guests pivot away from the Middle East and long-haul travel.
It is not that Europe’s hotels and hoteliers will not see some downside from the Middle East conflict, which will be added to some homegrown woe, said Sophie Perret, managing director at business advisory HVS London.
The cost of debt will increase and dampen hotel values, she said, with most investors likely to play a wait-and-see policy before restarting equity allocation.
One market that is suffering is Amsterdam, she said. The market there has borne a hotel tax of 12.5% since the beginning of 2024 and a national increase in value-added/sales tax from 9% to 21% since Jan. 1.
Kate Nicholls, chair, UKHospitality, raised investment concerns in the United Kingdom.
“We now have the highest employment taxes in [Europe] and the second-highest national living wage in the world. … Those are the bigger challenges that distinguish the U.K. market and mean that investors are just a little bit more cautious about investing in it,” she said.
Bright spots are Southern Europe, where leisure demand remains strong, and Eastern Europe, where demand has performed in a likewise manner and permitted hoteliers to raise average daily rate.
There might not be a replication of 2025’s 30% increase in hotel transactions volumes, though, Perret said.
She said that in terms of total transactions volumes, London and Paris were the most liquid markets in Europe, with 2025 seeing values of €2.3 billion ($2.7 billion) and €1.9 billion, respectively, that represented 10% and 8% of total volume, also respectively.
For single-asset transactions volumes, it was also London-Paris in the top spots in 2025, with London seeing values of €1.8 billion and Paris posting values of €1.9 billion.
Another market in 2025 that was notable for single-asset sales was Prague, which posted value of €580 million, she said.
Perret and Roche said the European landscape bodes well for positive revenue per available room in 2026.
“Europe remains a very well-positioned continent in terms of attracting travelers,” Perret added.
U.S. demand will focus on Europe and away from the Middle East, and they very likely will be joined by increased European demand for staycations or intracontinental travel.