Italy’s dynamic hospitality market has attracted plenty of international admirers in the last couple of years. Just as global tourism flows have expanded, with ADR soaring in 2022 and 2023, so has the volume of overseas investors, keen to join the market’s renaissance.
While more dynamic drives from municipal authorities, particularly in the likes of Rome and Milan, have greenlit fresh conversion projects to facilitate the entrance of global players, something else is happening too. A generation of independent hoteliers are hanging up the keys for the last time, and selling their real estate to international funds. “I don’t know if the industry has yet realised quite what a significant trend this is going to be,” says Luca Cerretani, head of Italy, PKF. “It’s quite difficult to measure but we are definitely in the grip of a generational shift.”
One hotelier in Rome, in his 70s, said he was selling the family business to a global chain after the stress of the pandemic proved the last straw following a lifetime of graft. “I’d rather just divide the cash between my children, so that they can do something else,” he said.
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Covid-19 destroyed hundreds of family-run hotels in Italy as demand for rooms fell by over 50 percent in 2020, according to Gabetti data. Yet, capital market transactions looked surprisingly resilient, with nearly €1 bn of hotels changing hands in the first year of the pandemic. This latter figure was influenced by two major transactions, the sale of the former Boscolo portfolio to France’s Covivio, and the deal for the Bauer hotel in Venice by Austrian fund Signa Prime Selection. Perhaps unsurprisingly, international capital proved most opportunistic at the height of the crisis, perceiving that Italy could only bounce back post-pandemic.
The 2022 bounce-back
International capital was right. In 2022, Italy’s major hotel markets surpassed 2019 benchmarks, with RevPAR some 17 percent above 2019, according to Cushman & Wakefield data. The country also recorded an uptick in hotel openings and rebrandings – some 50 hotels in total – including several luxury urban assets, such as Portrait Ferragamo and Casa Cipriani, both in Milan, and Palazzo Portinari Salviati in Florence, as well as high-end resorts, such as the 7-Pines resorts in Sardinia and Adler Spa Resort in Sicily.
The luxury trend reflects both a vacuum to fill – Italy has been lagging its European neighbours in terms of five-star properties – and the ambitions of the investors and global brands seeing opportunity in its high-end resorts and unique cultural baggage. Italy is home to the largest number of UNESCO World Heritage sites in the world, adding to its claims of exclusivity.
Middle Eastern investors, for example, who tend to prefer luxury hotel investments, are one such investor group, notes Patrick Saade, senior managing director at JLL’s hotels & hospitality group. “Their interest in Italy is driven by the potential for attractive returns and long-term value appreciation in a market that continues to be a popular tourist destination,” he says, citing the acquisition of Rosewood Castiglion del Bosco in Tuscany by a Qatar high net worth individual.
Israeli groups have also been conspicuous in the last couple of years. Real estate investment firm White City Buildings has unveiled plans to acquire and renovate various hotels in Rome which will be run by international operators, including Israeli hotel chain Isrotel. Fattal Hotel Group has been active in the capital and also acquired a luxury resort on the shores of Lake Garda from Aquileia earlier this year.
High profile North American funds like Blackstone, which pounced on Me Milan Il Duca, and the Bill Gates-backed Cascade Investment, which has acquired Palazzo Marini in Rome for the capital’s first Four Seasons, have also been observed.
There has been plenty of interest from European funds, too, including Prodea, Invesco, Edmond de Rothschild and JP Immobilien.
Questions around supply
The increase in luxury properties – with JLL recording a 57 per cent increase in the number of five-star hotels in the country in the last five years – has also allowed ADR to soar even if occupancy has not significantly expanded on 2019 figures. “It’s a curious fact that occupancy isn’t growing as much as expected, but the room rates have climbed markedly,” notes Luca. The data suggests that Italy’s well-off visitors are reasonably resilient to higher prices, even if occupancy trends nod to a potential alarm over excessive supply.
In Rome, an “open-door” planning office has seen the council greenlight an astonishing number of office-led conversions to luxury hotels in recent years. The capital is at the mid-point of adding around 20 new five-star hotels to the city’s downtown, injecting new life into Via Veneto, to the enthusiasm of local businesses and travellers alike. But after surviving with just a handful of five-star properties for the past few decades, how many luxury rooms can Rome take? A German hotels investor notes: “All this choice is great for the customers, but not so much fun for investors”.
Despite this, the international investor love affair with Italian hospitality is far from over. A swathe of international events – from the Winter Olympics and Paralympics in Milan and Cortina to the Ryder Cup and Jubilee in Rome – are set to inspire further investment strategies. Meanwhile, the country’s diverse offering – from coastal resorts to mountain stays, historic sites to agritourism retreats – is also luring investors ever further beyond the four main cities of Rome, Milan, Venice and Florence. While Four Seasons and Belmond have embarked in Puglia, Oetker and Jumeriah picked Capri. Adler Spa Resorts and HNH Hotels selected Sicily, as did Rocco Forte, which now numbers properties in Palermo and Trapani.
The Calabria region, which in 2022 attracted 16 percent of overseas tourists, would like to do better, and has recently created a regional development plan to capture international investment and visitors alike. The region’s President Roberto Occhiuto says that incentives will be offered for “the development of new forms of hospitality and redevelopment drives” as well as “family hotels”. He adds: “The objective is to close the development gaps compared with other regions of the country and Europe, overturning an ‘also ran’ narrative connected to the territory.” Consultancy The European House – Ambrosetti, which is assisting the region, describes significant infrastructure challenges and a need to improve the approach towards sustainability, but believes that its physical and natural resources could help unlock Calabria’s potential.
Independent outfits
What about Mom and Pop? While Cerretani anticipates ever larger investments from international players, family businesses are unlikely to ever exit the market completely. “For every successful international deal, there are hundreds that fail because the hotels are not in prime destinations or strategic city locations,” he notes. “Many overseas investors are looking for trophy assets in spectacular settings. So, we still anticipate that plenty of hotels will remain independent in the long term.”
The same goes for the short stay market and in particular, Airbnb-backed rentals. While cities like New York have gone to war with the homestays facilitator, Italy is unlikely to ever turn its back on the formula, despite pressures on housing availability in centres like Florence. “The city of Rome, for example, has done a deal to receive tourist tax directly from Airbnb, rather than having to go through individual properties,” he says. “That’s a game changer for Rome and eliminates the potential tax losses often associated with holiday lets.” International investors should probably take note as well, as competition continues to be fierce for tourist dollars, euros and yens, with travellers ultimately spoilt for choice.