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European hotel market: where to invest more profitable?

More and more people travel the world. According to the World Tourism Organization (UNWTO), in 2017 the number of international arrivals in the world reached a record 1.3 billion. The most significant increase is in Europe, where the number of arrivals on an annualized basis increased by 8% to 671 million. Experts attribute the growing popularity of European countries stabilization of the economic situation in the Eurozone and an increase in the number of tourists from the US, China and Russia.

The hotel business wins in this situation like no other. According to the audit company PwC, in 2017 the volume of transactions in the hotel market in Europe grew by 11% to a record 20.9 billion euros. Which hotels and which countries will bring the greatest profit to investors?

Three stars are better than five
Three-star hotels are the most promising segment for investors: on the one hand, they are accessible to more tourists, on the other – the costs of their operation are significantly lower than those of higher category hotels. Thus, according to the unified system of standards Hotelstars Union (to which 16 European countries are subordinate), the reception desk in hotels with three stars should work only 14 hours (and not around the clock), they are not obliged to provide concierge service, arrange parking or hire a doorman as in five-star hotels

European hotel market
Owners of five-star hotels have to more often update the number of rooms to keep the category Shane Hauser / Unsplash
According to the international consulting company Colliers, in the major cities of Germany, about half of the hotel stock consists of three-star hotels, and five-star hotels account for only 3–8% of the market. According to the calculations of the Institute of Statistics of Catalonia (L’Institut d’Estadística de Catalunya), over the past two years, the occupancy rate of Catalan three-star hotels increased by 11%, hotels with four stars – by 6%, and with five – decreased by 1%.

Old and new market leaders
One of the main reasons for the changes in the tourist market in the last few years is the terrorist attacks, which influenced not the number of trips, but their direction. According to UNWTO, in 2016, among the most popular destinations, tourist traffic increased markedly in Cyprus, Bulgaria, Portugal and Spain (by 10% or more), but decreased in Turkey (−29%), Belgium (−13%) and France ( −5%).

According to experts of the international real estate broker Tranio, France, despite the turbulent situation, will retain its position as the largest tourist market. Resort Spain and Italy will remain in demand. Turkey will leave the tourist arena for a while, as travelers will look for affordable alternatives in other safer countries: first of all, in Cyprus and in Greece.

Investors should also consider the preferences of business travelers: for example, in Frankfurt, according to PwC, they make up 75% of all visitors to the city. According to the company Cvent, London, Barcelona, ​​Berlin, Amsterdam, Paris, Madrid, Frankfurt, Rome and Munich are in the top 10 cities of Europe in terms of the number of business meetings and events in 2017.

European hotel market
Hotels bring a relatively high yield: 4–6% per annum, while street retail – 3–4%, and long-term rental apartments – only 2–3% Francesca Saraco / Unsplash
One of the important factors when choosing a city for investment is overheating of the market. Some European cities faced an oversupply of tourists: for example, the Barcelona authorities imposed a moratorium on the construction of hotels in the city center and banned the issuance of new licenses for renting apartments for short-term rent. The policy “NEE, tenzij” (“NO, if not”) was introduced in Amsterdam, according to which the developer planning to build a hotel in the city center must prove to the local government that his project meets the requirements of environmental friendliness and contributes to the development of the urban economy.

An example of a growing market is Athens, where the tourism sector is starting to grow again. According to estimates by research company Euromonitor International, modern Athens is the second city in Europe in terms of the growth rate of the number of tourists: the number of arrivals from abroad in 2017 was 4.8 million, 10% more than a year earlier. In the period from 2013 to 2016, the number of foreign tourists in hotels increased by 30% to 2.02 million arrivals, while the number of places in hotels, on the contrary, decreased by 1.1 thousand. According to the portal Hotel News Now, citing data from a research company STR, the occupancy rate of hotels in Athens in 2017 increased by 6% to 75%, the daily cost of rooms (ADR) – by 4% to 119 euros, income per room (RevPAR) – by 10% to 89 euros. According to George Kachmazov, CEO and founder of Tranio, Greece now offers excellent prospects for investment in hotels, since “the local market has reached the bottom and is beginning to grow.”

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