Real estate
Real estate

The case for European hotel sector investment

Short-term distress and strong long-term fundamentals create value opportunity

October 25, 2023
Graeme McCormack
Head of Fund Management – Hotel & Leisure Division
Hugo Steen
Head of Investments – Hotel & Leisure Division
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The COVID-19 pandemic dealt an unprecedented blow to the hospitality industry. Fortunately, travel has rebounded, and strong fundamentals bode well for the European hotel sector in the medium and long term. Yet for some hotel operators, cracks that surfaced during the pandemic are being made worse by high inflation and rising costs of debt. We believe this combination of strong fundamentals and pockets of distress presents unique opportunities for investment in the European hotel sector.

Key takeaways

  • For a subset of the European hotel sector—in particular, independent owner-operators—weaknesses exacerbated by the COVID-19 travel shutdown are now being made worse by high inflation and rising interest rates, creating distress. There is a window of opportunity to acquire these hotels at discounted pricing.

  • While many independent owner-operators are facing distress, the underlying long-term fundamentals for the European hotel sector are strong—robust demand, limited supply, attractive yield premiums, and high liquidity. Near-term headwind risk adds to the longer-term upside of a value-add investment strategy.

  • Discounted pricing opportunities (driven by distressed ownership) and strong fundamentals create a value opportunity for investors in the European hotel sector. Targeting independent hotels that are well located but underperform and require investment offers significant scope to create value through upgrading, repositioning, and improved operations.

Download the case for European hotel sector investing for more insights.

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MM13642 | 09/2023 | 3088433-122024
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