Investing in Italy: Where are the opportunities?

Sustainable growth in hospitality requires us to re-examine investment opportunities: what destinations and segments offer the best opportunities, what partnership models are best fitted for the market, and how to manage growth while considering ESG concerns?

It’s complicated

Horwath HTL’s global business director James Chappell describes Italy as a misunderstood and complicated destination. The structure of the Italian hotel market, which remains dominated by family owner-operators, has been “quite resistant to change”, he explains, and as a result, from an institutional, international investment point of view, it has not necessarily developed as fast as other markets.

“There are good and bad things with that… But a little bit more structure wouldn’t necessarily be the worst thing in the world,” he says.

Horwath HTL’s Italy Hotels & Chains Report 2023 indicated a strong recovery for the country’s hospitality market with increasing international brand presence. Chain properties have grown 3.3% year-on-year and now make up 5.5 per cent of the market, while 72 per cent of new chain hotels under development in Italy are with international brands.

The bureaucracy and administrative challenges have been the main obstacle to international brands entering the market, suggests Aldo Melpignano, CEO of Egnazia Ospitalità Italiana: “It’s very complex and if you have to navigate that as an entrepreneur it’s challenging.”

Finding the balance

The increasing presence of international brands in Italy will “encourage independent hotels to increase their quality and brings in good practices, which are good for everyone,” he says, although he acknowledges that there is a balance to be found.

“There’s a great case for independent hotels and small national brands to preserve the nuances of Italian hospitality and bring that authenticity,” he adds. “There are some wonderful 40-50-room properties run by families that do a fantastic job and compete with the international brands – they’re profitable and strong brands. You need a balance of both. There’s a need for consolidation and for international brands, but I’m a big advocate of independent hotels as well. I think the owner-operator can evolve.”

To ensure local and national operators can face the challenges of the international market on an equal footing, Chiara Caruso, head of the National Tourism Fund at CDP Group, is hopeful the market will receive more support to allow Italian operators to work in partnership with international brands, for example through white label operators, management contracts and franchising.

“This means a partnership between national operators and brands that can only be beneficial to the Italian system in order to bring quality, not only quantity, in terms of new demand for the Italian system,” she says.

CDP is supporting Italian tourism to grow both nationally and internationally through two different lines of investment: buying the asset and leasing it back to the same operator to allow them to invest revenues in growth, and requalifying existing brownfield assets for them to be upgraded to the needs of the new client.

Rome leading the way

Unsurprisingly, Rome is leading the development pipeline with 26 hotels due to open by 2025, most of which are luxury properties. This year has already seen the opening of an Edition hotel, a Six Senses, and the InterContinental Rome Ambasciatori Palace, with an art’otel and a ROMEO yet to come.

“I think that’s very positive because we have fallen behind all of the other major European markets in terms of the offer,” says Angelica Corsini, head of business development for Arsenale Group, which develops and manages luxury hospitality and lifestyle assets, including Rome’s Soho House and Santavenere Hotel Maratea, and three properties due to open next year: Abbazia di Spineto and two Orient Express hotels in Rome and Venice.

“We have a lot of hotels that are family-owned, some of them are run very well, some of them need a bit of an upgrade… we need to be able to adapt what we have to offer in Rome to these clients and the growing demand for quality product, service and infrastructure,” she adds.

The problem of over-tourism

However, with over-tourism negatively impacting some of Italy’s prime destinations including its capital city, investors feel there are opportunities outside of the usual suspects, with other interesting markets yet to be developed and what Italian trade commissioner in Germany Francesco Alfonsi described as “hidden treasures in Italy to be discovered”.

“I’d like to see the international brands coming to other destinations, because that drives the whole market to be better,” says Melpignano. “I’d like to see Italian hospitality going onto secondary locations as well, because there’s so much of Italy that wants to be discovered. Over-tourism is a problem but it’s a problem in very specific locations.”

Corsini highlights Catania as Italy’s sixth largest airport, where she suggests the season could be lengthened, while CDP’s strategy has expanded to include Italy’s secondary cities as well as beach and mountain resorts.

“A lot of our pipeline is made is made of restructuring and requalifying hotels in secondary cities,” says Caruso. “We are definitely not investing in the four major cities.”

Melpignano says there is a “great opportunity” in the Italian Alps “because we have a big gap in quality and prices compared to other destinations in the Alps”; while Elisabetta Fabri, president and CEO of Starhotels, suggests the south will be “the great surprise for us”.

Although Starhotels continues to invest in the top cities, including a recently completed renovation of its Hotel d’Inghilterra Roma and ongoing investment into Venice’s Hotel Gabrielli, “it would be wonderful to see the south grow, there’s a lot of opportunity and potential,” she says.

The increasing international investment in Italy “means they get it”, she adds. “They get what we have, and we should be very proud of it.”

All those quoted in the article appeared on stage at the International Hospitality Investment Forum (IHIF) held in Berlin between May 15 and 17, in a session called - Hospitality Investment in Italy: Exploring New Opportunities