Commercial real estate saw investment decline in Portugal and Europe throughout 2023. However, there was one sector that stood out positively: hotels. This is because in Europe, investment in hotels quickly began to show signs of recovery in the second half of the year. In Portugal, it even led commercial real estate investment. Expectations for 2024 are optimistic, with investment volumes in European hotels expected to "significantly exceed" the numbers from 2023, according to a Savills study.
In a year where commercial real estate investment was heavily affected by high interest rates and inflation, the hotel industry ended up being a refuge segment in Portugal. Hotels led real estate investment in the country, attracting over 570 million euros, with 83% of the capital coming from international sources.
The European country that attracted the most capital to hotels in 2023 was the United Kingdom, with 2.62 billion euros in hotel transactions. Spain followed closely behind, recording movements above 2.61 billion euros in this sector, as explained in a statement sent to the media.
In the British real estate market, there was an increase in hotel activity in the final stretch of 2023, "aided by a reduction in borrowing costs and thus by improved investor sentiment," clarifies the statement. Just this year, the United Kingdom already has over a billion euros in hotel assets, so Savills predicts that the total investment volume in hotels will surpass the levels of 2023.
All indications suggest that 2024 will also be a good year for hotels and hospitality in Portugal. "This year, the hotel segment is expected to maintain its dynamism, based on excellent operational performance, which will keep the country on the radar of international investors and hotel brands," says Luís Clara, Capital Markets Associate at Savills Portugal.
"In the second half of 2023, investment activity [in Europe] showed promising signs of recovery, marked by consecutive quarterly increases," concludes Richard Dawes, Director of the Savills EMEA hotels team, also indicating that "this momentum continued with stronger volumes in the first quarter of 2024 in several key markets in the region."
Hotels in Europe to attract 10 billion in three years
Hotels are expected to continue to be an attractive sector in real estate, as there is a greater willingness among investors to increase the capital allocated to this segment in the next three years. In just this period, respondents to the Savills European Investor Sentiment Survey 2024 expect to invest around 10 billion euros, particularly in "Serviced Apartments," "Lifestyle Hotels," and "Mid-Market Hotels."
"In Portugal, over the next two years, more than 80 new hotel units are expected to open, resulting in a total supply of over 7,900 beds spread across the country and promoted by international brands," highlights Luís Clara.
Until then, it is important to pay attention to demand in the European hotel market, which is still in recovery. Private buyers and owner/operators will remain active, and mid-cap private and institutional buyers are expected to rebound in 2024, "supported by the relative appeal of the hotel sector, strong demand fundamentals, operational performance, and pressure to deploy capital," emphasises Marie Hickey, Director of Savills research.
In addition to these, "debt markets will play an important role in shaping the investment landscape of the European hospitality industry in 2024," adds Charlie Bottomley, Director, Savills Capital Advisors, Debt Advisory, quoted in the document.