Hotel real estate took a battering in 2020. Now that the summer holidays are here, pent-up demand and ‘revenge travel’ spell sunnier times ahead for European hotel operators and real estate investors. However, business travel may take longer than leisure tourism to recover.

Leisure tourism is set to rally quite strongly this summer, as the public health situation becomes clearer. The various national mass vaccination campaigns, the recent reopening of intra-community borders and moves to harmonise health rules and entry conditions for international travellers are great news for the leisure hotel sector. This contrasts starkly with the situation in summer 2020, when tourists largely remained within national borders due to countries’ divergent health situations and policies.

Revenge travel
In a phenomenon shared with other consumer sectors, we can also expect ‘revenge tourism’ to be a factor this year, as travellers exercise defiance and celebrate their freedom in a powerful reaction to 18 months of restrictions. This is already evident in the statistics: for instance, Spanish hotel operators in leisure destinations – traditionally highly dependent on international holidaymakers – are reporting very good bookings for this summer.

Alongside the most popular summer tourist destinations, the recovery also seems to be benefiting Europe’s big cities that are traditionally popular as city break destinations. Following lockdown-enforced interludes in 2020 and early 2021, Paris, Rome, Barcelona, Amsterdam and Berlin are regaining their status as top destinations; other cities, such as Seville, are gaining ground. The return of European tourists is music to the ears of the hotel industry in these city centres.

A boost for the camping segment
Another significant trend is the fresh interest in outdoor accommodation. The camping segment fared relatively well in the face of the tough situation in 2020: French campsites, particularly those highly dependent on domestic tourists, recorded a drop in revenue of just 20% or so. This contrasts with a drop overall of 60% to 80% for hotel operators. Bookings have also bounced back in 2021. The French market – which is both the largest camping destination and receives the largest number of campers in Europe (worldwide no. 2) – should be the main beneficiary of that trend. In particular, the reopening of borders will facilitate the return of cross-border tourists (from Switzerland, Italy, Germany, Belgium, etc.) to French sites.

Seasoned campers will also be joined by the influx of newcomers who discovered camping in summer 2020, when the pandemic made people turn to open-air accommodation with its good social distancing and natural setting. One defining feature of 2021 may be loyalty and repeat business from these new customers.

The return of European tourists is music to the ears of the hotel industry in these city centres.

A cyclical asset class, driven by structural factors
Conversely, the business tourism story is less clear. A degree of inertia, partly as the widespread adoption of highly efficient digital systems for online meetings, videoconferencing and remote working is holding back the recovery in business travel, is compounded by corporate pragmatism. Faced with a public health crisis, management boards have good reason to be warier with travel policies and budgets. As a result, it will probably take 12 to 18 months before business travel returns to pre-crisis levels.

As an asset class, the hotel segment now presents a relatively attractive entry point as the Covid crisis subsides. Investors must nevertheless be aware of its cyclical nature, which is a source of volatility. Investment in hotel real estate requires a clear-headed, long-term approach. However, backed by structural trends – including an increasingly mobile global middle class – these assets have the potential to deliver above-inflation returns over a 10-year horizon. 

Author: Johanna Capoani, Head Hospitality Portfolio Management, Swiss Life Asset Managers France

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