Despite being hit hard by the pandemic, the hotel market has proved resilient and is now one of the most dynamic segments of the real estate sector, reports Manuel Bugl.

Just two years ago, “hotels are dead” was the harsh verdict of many market observers. The covid-19 pandemic had hit the industry hard: the absence of guests led to the collapse of business models, transactions ground to a halt and investors turned away.

Yet, as so often happens, this asset class was written off prematurely. Today, the hotel market is one of the most dynamic segments of the real estate sector, with robust overnight numbers and stable room rates. The numbers speak for themselves: occupancy rates in the DACH (Germany, Austria and Switzerland) region show a clear upward trend, with a projected increase of 3% in 2024 alongside a 4% rise in room rates.

However, a deeper analysis reveals a more nuanced picture: despite increasing demand, occupancy rates remain 6% below 2019 levels due to expanded supply. Adjusted for inflation, room rates in Austria in 2023 were merely at 2019 levels. In Germany, they lagged behind, even though nominal rates were 24% above pre-pandemic levels. Switzerland was the only country in the region to record real growth, with overnight stays rising 9.9% in the first nine months of 2023.

Most attractive investment targets

Looking at the broader European market, London, Lisbon and Amsterdam top the list of the most attractive investment targets. Paris and Rome have experienced impressive average daily rate (ADR) increases of over 50% compared with 2019. 

There has also been a geographical shift in investor interest. While traditional markets such as the UK and Germany have lost some attractiveness (down to 37% and 29%, respectively), destinations such as Greece (31%), Spain (33%) and Portugal (33%) are gaining traction.

Focusing solely on nominal rates is insufficient for well-founded investment decisions. The European ADR growth trajectory has stabilised following the extraordinary post-covid recovery.

Growth is normalising – from 17.6% in December 2022 to 4.6% in December 2023 – with European ADRs still 25.9% above 2019 levels by the end of 2023. By Q3 2024, some European markets even achieved further double-digit growth rates.

Shift in operator models

An important transformation is taking place in operator models. Traditional leasehold advocates are embracing management contracts and hybrid models with revenue-based components – a trend reflecting the evolving market reality.

These hybrid structures combine a fixed base rent with revenue-dependent elements, leading to a more balanced risk-reward distribution between owners and operators. Amid higher return expectations, flexible operator models that enable direct participation in operational success are becoming more relevant.

The transition to sustainable hotel real estate is no longer optional, but mandatory. As an asset class with an above-average carbon footprint, hotels are under scrutiny. But what initially seemed like a regulatory burden is now proving to be a tangible competitive advantage. Recent studies show growing demand for sustainable hotel offerings, with guests willing to pay a premium for them.

‘The market presents an exceptional window for strategic investments, backed by robust operational indicators.’

Manuel Bugl, Wealthcore Investment Management

Our approach is twofold. First, we bring the property itself onto a green path (CRREM) and then we implement concrete operational measures with operators.

A key element is the consistent implementation of green lease agreements. These not only incorporate traditional sustainability aspects, but also include binding ESG data-reporting obligations – an area where many property owners still struggle. We can contractually anchor and operationally implement these complex requirements, from installing photovoltaic systems, to innovative guest incentives such as compensation programmes for foregoing daily room cleaning.

Geographical shifts

Regional differences in market dynamics remain pronounced. While Southern and Western Europe are booming, Eastern European markets are grappling with the repercussions of the war in Ukraine.

Spain established itself as the leading European hotel market in 2023, with transactions totalling €4.2 billion, followed by the UK at €2.62 billion. London and Paris continue to rank as the most attractive cities for hotel investments, underlining the enduring strength of Europe’s metropolitan hubs.

The DACH region has positioned itself as a stable centre, with a notable turnaround following years of significant transaction declines (2022 vs 2023: -20%). Berlin led the German hotel investment market with nearly 26% of market share, followed by Munich, Stuttgart and Hamburg. Vienna and Frankfurt are expected to experience a sharp rise in investment activity from 2025 onwards.

This trend is underpinned by strong performance in existing properties. After a strong 2023, Germany – except for Berlin – is experiencing a positive development in overnight and occupancy figures compared with pre-pandemic 2019 levels.

From September 2023 to September 2024, this positive trend was particularly noticeable in Zurich and Vienna, where both occupancy rates (2%) and average room rates (5%) improved.

Germany is showing clear signs of recovery. Every major hotel market is growing, with Stuttgart standing out: not only has occupancy grown the most (8%), but the average room rate has also risen sharply (12%). National travel numbers have already reached or exceeded pre-pandemic levels, and international travel is only about 6% below 2019 figures.

This positive trend, coupled with a sharp decline in new developments, is expected to lead to a supply shortage in the near term.

Strategic investment opportunity

Investment volumes across Europe are expected to rise by 15% to 25% in 2025, supported by improving capital market conditions and anticipated rate cuts by the European Central Bank.

With the ongoing normalisation of the transaction market, investor interest is set to rise further. The data is compelling: in Germany alone, transaction volumes in the first three quarters of 2024 reached nearly €1 billion, a 73% increase on the previous year. The market’s dynamism is highlighted by over 60 registered deals, with foreign investors accounting for 53% of the investment volume.

Three key factors will determine long-term success:

1. Consistent integration of ESG criteria in real estate and operations
2. Flexible operator models that enable fair risk-sharing
3. Precise location and market analyses that account for evolving demand patterns

For investors who factor these elements into their strategy, the current market offers attractive entry opportunities. Seller and buyer price expectations are gradually aligning again, as evidenced by a stable prime yield of 5.25% for hotel real estate since the end of 2023.

The hotel industry has demonstrated remarkable resilience, proving once again that prematurely written-off asset classes can experience a strong revival. The market currently presents an exceptional window for strategic investments, backed by robust operational indicators: revenue per available room in October 2024 was about 15% above pre-pandemic 2019 levels and approximately 75% above the 2020 low. Following the post-pandemic recovery, the market has now settled into stable, slightly positive annual growth of around 2%.

Europe has strengthened its position as a preferred travel destination, evidenced by consistently high demand. However, navigating this new reality requires a differentiated approach: successful investors will combine operational expertise, ESG-driven strategies and flexible operator models to capitalise on the resurgence of the hotel investment market.

Manuel Bugl is managing director of Wealthcore Investment Management