Hotel forecast 2014 and 2015

The hotel forecast for 17 of 18 major European cities predicts healthy growth, according to the third annual PwC European Cities Hotel Forecast. The hotel forecast for Dublin, London and Paris is especially strong, followed by Edinburgh, Berlin, Moscow, Vienna and Frankfurt.

This year’s hotel forecast predicts what will happen in key getaway cities or business and tourism centers across Europe. Some of these cities are expected to become mega cities, and “mirror challenges facing other cities in Europe where position on the economic and hotel cycle is crucial.”

The authors explain that some cities are in a better position to grow than others, given a range of factors such as demand, supply, regulation and economic stability.

Greatest revenue per available room

The following cities are forecast to have the greatest RevPAR (revenue per available room), in 2014, in order:

  • Dublin
  • London
  • Paris
  • Edinburgh
  • Berlin
  • Frankfurt
  • Vienna
  • Moscow

For 2015, the hotel forecast for top RevPAR cities are, in order:

  • London
  • Dublin
  • Lisbon
  • Prague
  • Moscow
  • Edinburgh
  • Zurich
  • Frankfurt

Of all the cities in the two lists above, only Lisbon is in southern Europe.

With demand exceeding supply in Dublin over the next two years, RevPAR is expected to rise by 5.2% in 2014 and 3.8% in 2015.

Although London will significantly expand its supply, stronger demand means RevPAR is forecast to grow by 3.8% in 2014 and 5.2% in 2015.

Hotel sector 2013

(Source: PwC. ADR = average daily rate)

European hotel market 2013

In Europe, the hotel market has almost returned to its pre-recession 2007 peak, however, only in nominal terms. In real terms it still has a long way to go. “Overall, the average Europe-wide RevPAR in 2013 was €67.99, which was 6.5% lower than the 2007 high of €72.70, but 18.5% lower in real terms. The RevPAR disparity shows how the hotel sector has underperformed the wider economy, as real GDP (gross domestic product) in 2013 across the EU was only marginally below the 2007 peak.”

Hotel occupancy has nearly reached the 2007 peak. In 2013 it reached 67.4%, nearly the 68% registered in 2007. ADR (average daily rate) lagged behind with €100.88 in 2013 versus €106.98 in 2007. While only 5.7% lower in nominal terms, it was still 17.9% down in real terms.

According to the PwC report:

“Though overall demand for European travel remained strong, 2013 proved to be a volatile year of up and down growth, varied by market. In annual terms, overall occupancy was up and all regions saw growth, with the strongest gains in Northern and Eastern Europe.”

“Hotels saw a 2.4% gain compared to the same period in 2012, according to STR Global data.”

Hotel forecast megatrends

There are five major ‘megatrends’ that will drive the hotel sector’s business models:

Hotel forecast
Source: PwC
  • Shift eastward in global economic power – as the global economy tilts eastward, a growing number of tourists from emerging economies are expected. European hotels will need to cater for a wider range of cultures. They will need to customize their offering as the number of senior (over 60s) travelers increases.
  • Social and demographic changes – people in the Western world are aging, and median incomes have stagnated across all advanced economies. These and some other social and socioeconomic changes will affect the hospitality sector “in myriad ways.”
  • Technological developments – social media, the growing usage and capabilities of smartphones, analytics and cloud services will transform hotel companies’ business models.
  • Rapid urbanization – the authors see today’s rate of urbanization as “unsustainable”, with a “shift from prioritization on jobs to quality of life.”
  • Climate change, sustainability and scarce resources – hotels will need to adapt to changing requirements regarding levels of emissions and resource usage.

Robert Milburn, Hotels leader, PwC, stated:

“Though economic and hotel growth is forecast for 2014 and 2015, megatrends and shifting challenges are revolutionizing this sector. Those in the hospitality market that are attuned to the demographic, technological and economic changes and are able to adapt accordingly have the chance to thrive. Those who do not respond quickly and strategically may struggle in this bustling, competitive landscape.”

Issues the hotel sector faces

Even though the economy is recovering and consumer confidence is on the up, there are several issues of concern for the hospitality industry, including:

  • a high cost of doing business
  • extra regulations
  • more taxes
  • the emergence of hotel alternatives, such as AirBnb

Hospitality & Leisure Head at PwC, Liz Hall, said:

The European hotel market cannot be viewed as a single entity – it’s a multi-layered market, and one solution does not fit all. Despite economic recovery, many challenges persist for the hotels industry – owners and operators are pressured to find profitable growth. Hotels need to capitalized on the improved economic environment and the new opportunities brought by innovation in technology and demographic shifts.”

The study is titled “Room to Grow: European Cities Hotel Forecast 2014 and 2015.”

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