"The end of tourism?" was the Guardian's headline in 2020, and now, five years after the first lockdowns were introduced and in a very different geopolitical landscape, tourism is very alive, with 2.9 billion overnights in 2023 in the EU (+2.4% vs 2019).
Contrary to many predictions, the thirst for discovery and travel whether domestically or internationally picked up relatively rapidly as restrictions were lifted. By 2023, most European markets had already exceeded 2019 overnights, considered an all-time high in many destinations.
The tourism industry continued to recover and grow despite a surge in inflation, rising interest rates, slowing economic growth and conflicts in Ukraine and the Middle East. Hotel performance remained robust, driving ADR gains well-ahead of inflation as demand consolidated. The strong performance of this asset class put hotels in the spotlight, particularly as offices led the slump, driven by a slower return-to-office trend. Residential proved resilient, albeit in the face of declining margins.
Now, five years on, and despite the many disruptions at national, regional and global level, we take the time to look back at what drove tourism's exceptional resilience and consider the forces likely to sustain continued growth in the future.
The return of Chinese travel is likely to offset the slowdown in US demand
The strong recovery of the European tourism market has been driven by a significant increase in demand from the U.S., which produced 67 million overnight stays in the EU in 2023, up 15% compared to 2019. Europe is boosted by America’s spending power driven by a strong dollar coupled with significant economic growth in the U.S. compared to weak economic conditions on the Old Continent.
However, 2025 is off to a rocky start due to a major split in the status quo of the newly installed government, leading to great uncertainty and a steady decline in consumer confidence. February data recorded the largest monthly decline in U.S. consumer confidence since August 2021.
The potential slowdown in the U.S. economy paints a worrying picture for the future of European tourism. On March 19, the Federal Reserve cut its GDP forecast for the year from 2.1% to 1.7%, with Chairman Jerome Powell stating: "We understand that sentiment is quite negative right now, and that's probably related to the turmoil at the beginning of an administration that's making big changes." This economic slowdown, coupled with the current administration's efforts to devalue the dollar, is likely to favor domestic tourism rather than overseas travel. Consequently, should this materialize, we could see a slowdown in demand from the U.S.
Although not ideal for the European tourism sector, as American travelers represented 3% of the European overnights in 2023, there is good news coming out of China. The "sleeping dragon" appears to have awoken, thanks to significant stimulus measures aimed at boosting the economy and supporting private consumption. If successful, these measures could lead to a resurgence of Chinese travelers to Europe — 9.6 million in 2023 vs 22 million in 2019 — offsetting lower U.S. demand and potentially delivering another year of growth for the European tourism industry. Chinese travelers only accounted for around 9.3 million overnight stays in 2023, less than half the number in 2019. The return of Chinese tourism, particularly groups, could be very beneficial to the dynamics of major capitals, where while ADR growth has been robust, occupancy has struggled to fully return to 2019 levels, leaving significant room for occupancy-driven RevPAR growth.
Europe's economic support: A catalyst for domestic tourism
Looking at our own backyard, it is worth remembering that 90% of overnight stays in Europe are domestic. The elephant in the room remains: Will Europe's economy pick up?
After a decade of lackluster growth, war and an international movement towards de-globalization, Europe seems to have woken up to the idea of kick-starting its economy with significant fiscal stimulus. Major plans such as Germany's €1 trillion fiscal package, split between defense and infrastructure, the EU's ReArm program and the materialization of NeGen funding are evidence of a change in economic policy. While the question of the sources of funding remains, should the plans be implemented, we are likely to see a boost to economic growth, which will support corporate demand, private consumption and further boost tourism within Europe.
However, in the past, despite years of shrinking pockets, Europeans continued to travel. Therefore, we must pose the question: should the pockets get deeper, will we travel even more? We are inclined to believe that economic recovery will likely lead to more growth for tourism, via either higher spending or greater frequency.
Investment and demographics: Key drivers of European tourism growth
From an investment perspective, Europe remains an attractive destination. The continued professionalization of the industry, with brand penetration doubling in the last 30 years, and the emergence of brands able to adapt to rapidly changing consumer behaviors and needs is likely to continue to grow in Europe. In addition, with the breadth of “Destination dupes,” continued investment in connectivity and a political will to remain open to international demand, Europe has further room to grow.
A basic yet powerful driver of growth is demographics. In 1970, the retirement age for men in the UK was 65 and life expectancy had just passed 70. Fast forward to 2025, and while the retirement age remains the same, the average Briton is likely to live to 80. Longer life expectancy, coupled with advances in preventative and digital healthcare, means more time to travel in retirement, supported by high disposable income. With around 20% of the EU population currently in the 'retirement age' bracket and projected to rise to 25% by 2030 and 30% by 2050, this creates a perfect mix to support the tourism industry, and the continued growth of the European market provided it continues to adopt to this clientele’s requirements. In addition, the growing trend towards shorter working weeks, such as pilot schemes in the U.K., Germany, Spain, and others, and a greater focus on work-life balance is likely to further stimulate demand and structurally modify its profile.
Conclusion
As in the first quarter, 2025 is likely to be full of rapidly changing headlines and dynamics, requiring agility from investors. However, strong macro fundamentals are driving tourism demand. In 20 out of 36 tracked markets, RevPAR YTD year-on-year growth has exceeded 5%, and only six markets have shown a slowdown. Europe's unique positioning as a destination with diverse offerings, undiscovered places and shifting demographics, as well as the hope of a pickup of economic growth, should help investors navigate the noise and shocks of our globalized world.
Carine Bonnejean is managing director of hotels at Christie & Co., based in London.
Gabriele Capacci is a hotel consultant at Christie & Co.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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