There are signs of the recovery of Europe's biggest hotel markets, and although Europe lags the U.S., it is likely to be a bellwether for the rest of the globe in the coming months.
During a May 13 webinar, Robin Rossmann, managing director of STR, CoStar's hotel analytics firm, said the European hotel industry performance is two to three months behind what's happening in the U.S., but the Easter holidays caused Europe’s average daily rate rise to near 2019 levels in real terms.
“Weekend [average daily rate] is up 15% to 20% in the U.S. on 2019 numbers, in weekdays by double digits, and Europe will soon replicate that,” he said. “Europe is up 6% on 2019 levels.”
Rossmann added one caveat is that Europe's ADR recovery is not good enough when considering inflation, and increased costs are not helping the bottom line.
But hotel guests across demand segments are returning, and that is good news for the coming months, he said.
“Europe will be the poster child of recovery over the next months," Rossmann said. "The most pleasing thing is not the recovery of weekend demand, which we have all seen, but the recovery of weekday demand, which is to about 10% of pre-pandemic levels."
In rolling 28-day numbers, European hotel occupancy has reached almost 80% of 2019 levels, he added.
“There is absolutely no reason why in the coming month that will not come back up to what we see in the U.S., where it is 90% and 95%,” he said.
Rossmann said now hoteliers in Europe are feeling a lot better about the industry, even though there are headwinds, including airlines struggling to cater to travel demand.
Traveler sentiment underlines the industry's optimism, he said, with the number of travelers stating they would not conduct any travel falling noticeably between August 2020 and May 2022.
“Domestic propensity to travel has recovered but international is still down by 32% [in May 2022 numbers]. In domestic markets, it is down only 4% on pre-pandemic numbers,” Rossmann said.
The one outlier is business travel, he said, where there are different risk profiles. According to the latest numbers, business travel is 44% down on 2019 levels but that the negative number has shown a reduction in the weeks since COVID-19 is no longer the main subject of conversation.
“Interestingly, costs are now the biggest barrier for future travel. It is no longer COVID-19," Rossmann said. "The reasons none of that will matter in the next six to nine months is because there is so much pent-up demand … which is coming through week in, week out."
Ski, Sea and Tea
Across individual European countries, recovery is happening at different speeds, but the good news is that everyone is recovering.
Ski and coastal destinations and the U.K. led occupancy figures in both March and April, three travel-demand generators Rossmann coined “ski, sea and tea.”
In rolling 28-day occupancy numbers, Poland, Ireland and the U.K. are leading the push, Rossmann said, but Germany and Austria are struggling more, with COVID-19 restrictions easing only recently.
In terms of hotel ADR, Ireland is up 21% on pre-pandemic rates. Portugal, at 18% growth, and Spain, at 14%, are just behind Ireland.
“Germany will come back this year, but it will just be the slowest. ADR in March is up everywhere, except for gateway cities. We are seeing massive recovery,” he said.
Rossmann said it is likely Dublin, Barcelona, Paris and Rome will have 100% recovered by the end of May, with many other European cities not too far behind.
“Margins are being maintained, and profitability is coming back,” he added.
Elsewhere, the ongoing war in Ukraine is also affecting travel demand, Rossmann said.
“Travel in Russia is down to 50% of 2019 levels,” he said.
Across Europe, economy and luxury hotels are showing the best performance.
“Luxury hotels lag in occupancy in gateway cities, but not in leisure and resort markets and not in terms of ADR," he said. "Luxury in terms of [total revenue per available room], [gross operating profit per available room] and total profitability is the outperforming asset class in 2022, particularly where it pertains to leisure destinations."
He added resort hotels are no longer the last resort of investors.
Outside Europe
Beyond Europe, the Middle East is seeing ADR increase by 40%, almost exclusively driven by Dubai. But Asia is suffering, notably due to the shutdown in Chinese cities such as Shanghai, its economic center, Rossmann said.
“[China is] showing about half the occupancy of pre-COVID-19. It is not going to recover anytime soon … and even when it does, people will need to get passports, so that will take a while,” Rossmann added.