COVID-19

Short haul to lead recovery

Edinburgh, Glasgow and Manchester were amongst the European cities well positioned for performance recovery, according to CBRE.

The comments were made as HVS pointed to Germany’s hotels benefitting from the country’s strong fundamentals once the market reopened, ahead of other markets.

CBRE said that markets with material exposure to leisure demand and a lower reliance on both international travel (particularly long-haul) and MICE demand were best positioned for a more rapid recovery.

Joe Stather, associate director, hotels, CBRE said: “Previous demand shocks in the hotel market show us that not all customer segments are impacted to the same degree, or indeed follow the same trajectory in terms of recovery. We anticipate that markets across Europe which have previously benefitted from strong domestic leisure demand are well positioned to lead the recovery cycle.”

Domestic travel was expected to be first to see a return of activity, according to the research. This would be predominantly supported by the gradual reopening of economic markets alongside the lifting of some travel restrictions. In 2019, 63% of tourism spend across Europe was from the domestic travel market, with Germany, the UK and Italy having the highest share of domestic tourism spend.

International travel demand was expected to take longer to return, with short-haul recovering before long-haul. Leisure travel was likely to see an immediate surge in demand, particularly staycations. Countryside and rural hotels across Europe are expected to benefit from this trend first, as travellers will initially seek to avoid densely populated locations.

Generally, the growth rate of corporate demand had been lower than the growth rate of leisure demand over the last decade, and whilst corporate travel would return as economic activity resumes, CBRE expected it to be limited and to remain below ‘normal’ levels for the short-to-medium term. Companies will look to recover their financial position before increasing spend on travel.

According to the report, international MICE was likely to be the most impacted segment and would take the longest to recover within the hospitality sector. Cities such as Paris, Vienna, Madrid, Barcelona and Berlin were heavily exposed to the postponement and cancellation of large meetings and events. However, in the long-term these cities were well positioned to capitalise on the recovery in this segment given their availability of leading conference and exhibition space, infrastructure and connectivity.

The study came as HVS commented that it expected Germany to experience faster growth than some of its European counterparts when domestic and cross-border travel resumed.

German leisure demand amounted to 70.1 million holidays (defined as at least a five-day stay) in 2018, of which 27% occurred within the country. According to the WTTC, total domestic travel spending in Germany amounted to €306bn in 2018, illustrating the strong demand base from German corporate and leisure travellers.

Arlett Hoff, director, HVS’s London office, said: “We expect domestic corporate demand in Germany to be fuelled by a return of economic activity as soon as the servicing and manufacturing industries kick back into action. Domestic corporate travellers have contributed significantly to the hotel industry in the past, as shown in the table below. Hence, it is an important segment to drive hotel demand in Germany before cross-border travel is allowed.

It has already been announced that large gatherings will not be allowed before 31 August, at the earliest. Most of the conventions and trade fairs in the third and fourth quarters were therefore unlikely to happen in their known format and with fewer participants, adversely affecting the hotel industry overall. Cultural and other social events such as the Munich Oktoberfest had already been cancelled.

HVS also pointed to significant new hotel supply in the pipeline for Germany (according to the AM:PM database, an increase of about 5% in hotel supply (+15% in hotel rooms)) over the next three years.

Hoff said: “However, how many of those hotel projects will ultimately be realised is questionable. There is also the issue of closed down hotels not reopening or converting to other uses (such as residential, student housing and so forth) which will help to keep the hotel pipeline smaller than expected pre-COVID-19.

“We are not implying that the hotel industry in Germany has not been hit as hard as other European countries at this point. However, we consider that the strong domestic demand will fuel growth once the German government opens up more commercial activities in the country. The fundamentals of Germany are strong, and the hotel sector will benefit from them faster than in other European markets.”

 

Insight: The domestic message is coming through loud and clear. But hotels need not think they will be first in line for all that pent-up lust to leave the house. It is unlikely that there will be a vaccine in the next few months - or before the end of next year - so any travel will be cautious in the extreme.

This will mean people favouring what they can control. Car travel, where possible. Self catering is likely to be popular for those who want to bring their own cleaning equipment - just to make sure. Camping for anyone outside the British summer.

What will have piqued the interests of many in Hoff’s comments were thoughts around Germany’s hotel supply. Not least seeing some hotels moving to less easy-to-close operations such as student housing. This may well open Germany up to more transactions in the future, as some investors had found the pricing a little rich for their tastes. Could this include inroads from Whitbread, which needs to stake its claim?