Across the UK and Europe, consumers have been absorbing the impact of the combined financial hit of inflation, soaring costs and wage stagnation. Yet for much of last year that did little to deter travellers from spending on hotels, no doubt buoyed by the opportunity to travel amid fewer or no post-pandemic restrictions.
However, during the last quarter of 2022 the recovery in international hotel bookings in both the US and Europe juddered to a halt and the hotel industry is now waiting to see how 2023 plays out.
According to the latest HotelHub Index for Q4 2022, published in January 2023, international hotel bookings from the US decreased steadily over the final quarter from 16% of total volumes at the end of Q3 to 13.5% in December 2022 - still a long way short of the 27% of hotel bookings for international travel from the US in December 2019.
International bookings from European markets also dipped during Q4, bucking the upward trend of the previous two quarters. At the end of Q3 2022, European international bookings had staged an almost complete recovery, reaching just 1% below 2019 levels for the same period, but that had fallen away to 3.5% by the end of December 2022.
Average daily rates continued to fluctuate across the quarter. London fell from €253 to €243 in October, but rose again to just under €250 in December; Paris rose by 5% in October, but fell again by 13% at the end of the year; rates in Rome fell overall by 20% during Q4 versus Q3.
“The fact that the volume of international hotel bookings from both the US and Europe has dipped over the final quarter of the year is not particularly surprising, given that business travel’s post-Covid recovery has been impacted by so many geopolitical and economic crises,” adds Eric Meierhans, chief commercial officer, HotelHub.
“The fluctuation in average hotel rates is also a sign of the volatility in the market in recent months. We do expect rates to increase however over the first half of 2023 due to the impact of inflation, as well as hotels facing increased costs because of staff resourcing challenges, higher wages and energy bills,” he says.
Room rates to increase despite volatility
Meanwhile, the latest data from hotel market analyst STR found that Europe’s properties had an overall occupancy rate of 64.6% last year, down from 75.1% achieved during 2019. Despite filling fewer rooms during the year, the average daily rate (ADR) in Europe rose by 18.5% over the same period to reach €136.70 on a “constant currency” basis.These higher hotel rates allowed Europe’s hotels to record revpar (revenue per available room) of €88.30 in 2022, up by 6.1% on 2019’s average. London hotel ADR and revpar came in higher than the 2019 comparable for an eighth consecutive month, according to preliminary December 2022 data from STR, though occupancy was down 4.5%.
“Overall last year was very strong and, while we do anticipate some softening in Q1 2023 and occupancy rates to remain below 2019 levels, the rates achieved are significantly up,” says Thomas Emanuel, senior director, STR. “We believe that as we approach the summer the pent up desire to travel will keep demand strong.”
While Emanuel says that all categories are performing well, he notes that luxury and value are showing particularly positive occupancy levels, reflecting the twin desires for some to treat themselves and for others to travel on a budget.
“Where the recovery has been slower is in international business travel, which is still suffering from a Covid hangover,” he adds. “So we expect to see an upswing in people travelling for work or to attend exhibitions and conferences. We also expect to see those markets which came back slower – such as Germany, which emerged cautiously from restrictions – record a stronger comeback in 2023 than, say, the UK, where things went back to normal pretty quickly.”
Sentiment recovery in 2023
Savills director commercial research, Marie Hickey, agrees and says the advisor remains very positive about the outlook for 2023, despite a late wobble last year.
“At the end of November last year our team was sensing that 2023 may not look good, but even though we anticipate challenges in the first half of this year, sentiment is improving already and issues such as inflation already look as though they will resolve faster than first thought,” says Hickey.
Like Emanuel, she notes that luxury and value have performed particularly strongly, with serviced apartments and aparthotels also seeing high levels of occupancy.
“From a landlord perspective, serviced apartments tend to operate at higher margins and are less exposed to increased costs in areas such as labour,” she says. “And for consumers they fit the value profile, because people can self-cater. On the other side, in the UK alone savings rose 42% over the pandemic and that means there are a lot of people sitting on money, which has helped boost luxury.”
Existing operators may be aided by the slowing of new supply, meaning comparatively little new space is coming to market. According to STR, total hotel capacity in construction in Europe sit at 189,698 rooms, down 14.5% year on year, with Germany (36,162) and the U.K. (28,426) leading Europe in terms of total rooms in construction.
Operating cost challenges
Agent Christie & Co notes that tourism demand in the German, Austrian and CEE markets grew significantly in 2022, ultimately exceeding the levels of 2021, and in some cases reaching pre-crisis levels. However, the advisor warns that inflation-related cost increases and acute staff shortages presented hotel owners and operators with new challenges. The situation in Scandinavia is similar.
It anticipates that some hotel owners will be forced to sell their hotels in the second half of 2023, or find a new operator, noting that hoteliers in ski destinations in particular are facing new challenges due to high energy costs, general climate issues and lower demand from the high-consumption feeder markets of Russia and Ukraine.“The majority of market participants are positive or neutral about 2023, despite the seemingly fierce global headwinds,” says Lukas Hochedlinger, managing director Central & Northern Europe, Christie & Co. “Some hotel owners and operators want to seize the opportunity and continue to grow, others will adapt their operating structure."
In its most recent update on operational performance, HotStats also highlighted the known unknown of rising costs, adding: “The one abnormality to all is rising labour costs. In Europe, payroll costs on a per-available-room basis were up to their highest level in September 2022 since November 2018 and, at €58.33, €3 higher than in September 2019.”
For Europe, the biggest question perhaps is whether long haul will stage a comeback in 2023, especially the still largely missing Chinese travellers who are pivotal to markets such as Milan, Paris and London. Hickey says that the return of Chinese travellers would be a huge boon and believes that major destinations will see higher occupancy rates, though she anticipates revpar may remain static.
“Intra-regional and domestic travel has largely returned but long haul is still lagging,” says Emanuel. “Obviously there are some difficult months ahead because of the economic pressures, but overall we’re pretty bullish.”