The boom in leisure hospitality across Italy is attracting the attention of global brands and investors. This fragmented market is reputed to be difficult to enter, but there is space for newcomers and an abundance of segments, from the mountain and wellness resorts in the north to the beach properties by the Mediterranean. What are the best strategies to enter the market? What destinations offer the best opportunities? And how can operators find the right partners?
“Italy benefits from having five or six destinations in their own right, internationally-recognised destinations with their own brand, urban and resort – Tuscany, Puglia, Rome, Venice. It benefits from having so many destinations that are very sought-after by consumers,” says Josh Littman, VP development (EMEA) at SH Hotels & Resorts.
“On the back of that, you have limited stock, very few international brands. Consumers looking for authenticity and the European experience is presenting a lot of interesting opportunities for investors.”
The hotel brand management company for global private investment firm Starwood Capital Group, SH operates brands including 1 Hotels, Treehouse, SH Collection and Baccarat – the latter of which is set to debut in Rome in late 2025 following a restoration and rebrand of the former Hotel Majestic.
“We’ve spent more time looking at Italian opportunities over the past few years than anywhere else with a variety of different investors,” says Littman.
“Asset pricing has been put up really high, everybody wants to be in Italy, from a consumer and an investor standpoint… the margins are quite thin if you want to get a prime asset in a central location, land is scarce.”
He adds: “It’s not easy getting these deals done between the debt financing and getting the locations, so everyone has to share the risk. We’ve seen a lot more of that, putting us into an uncomfortable position sometimes.”
Generational hotel ownership
One of the difficulties for investors looking to enter the Italian market has been generational hotel ownership. Giuseppe Atzeri, managing director of VT Capital Ltd, suggests this also makes it a hard market to access information. VT Capital, a boutique consulting firm focusing on investments in Southern Europe, specialises in operating assets, repositioning projects, and mixed-use new developments. Its portfolio includes a three-to-four-star hotel and serviced apartment brownfield project in Milan and a five-star wellness resort greenfield project and branded villas in a seaside tourist destination in Italy.
There can also be strict limitations on seafront developments to contend with. “We have seen emerging destinations like Puglia coming up in the last few years, Sardinia growing, Sicily growing,” says Mario Ferraro, CEO of Smeralda Holding, which owns Hotel Cala di Volpe on the Sardinian Costa Smeralda.
He says there is “a lot of appetite” for what he describes as a “secure segment” where, dependant on restrictions, “whatever the inventory is today, that will be the inventory forever, with the exception of some conversion opportunities”.
Opportunities to be found
Despite this, there have been shifts in the market in recent years, and Chiara Tufarelli, director of Italy Sotheby's international realty, suggests a decreasingly fragmented market is emerging as it moves away from generational ownership.
“A lot of these families have a lot of debt, which they can’t repay at one stage, and this is where the opportunities for big investors are,” agrees Ferraro, who believes there will be “a lot” of opportunities emerging for investors over the next few years.
Meanwhile, appetite for resorts as an asset class has become more central in the last five or six years, with an “interesting market for opportunities” emerging in this segment, suggest Atzeri.
Ferraro agrees: “A lot of investors have broadened their spectrums from purely investing into city properties [to resorts]… resort destinations in Italy have become very appealing in the last few years, the profitability in that sector has grown a lot and demand has grown as well.”
Karl Bieberach, senior vice president – global development at luxury hospitality brand Belmond, which has a portfolio approximately a third of which is in Italy, says the group has seen a “tremendous rise” in average daily rates (ADRs) in Italy following the pandemic. He says that much of this has been fuelled by domestic and regional guests who have been surprisingly willing to spend money that, in the past, would have been expected of UK and US guests.
“A lot of this has been fed by markets that we were not anticipating would sustain the level of pricing that we are seeing,” he says. “The lockdowns helped the domestic markets rediscover our destinations and hotels… we think that this is something that will stay.”
Littman, meanwhile, suggests there are opportunities in a lot of the key markets, particularly for upper-upscale and four-star lifestyle brands. SH Hotels has been looking for properties suitable for its lifestyle Treehouse brand in Rome and, barring a few hotels such as the Hoxton, “there’s really nothing else in the market like it,” he says, “something in that €200-€300 ADR range for people who don’t want to spend €500,000-€800,000 a night”.
“For consumers, you want something more than a hostel or three-star hotel. It just seems to be a massive gap in all of the markets, whether it’s branded or unbranded,” he adds: “If you think about the existing supply of upper-luxury hotels in cities like Rome, there’s only four or five, and they’re all about 100 keys.”
Consumer behaviour has also changed post-Covid, suggests Ferraro: “People are looking for less crowded destinations, more nature, nobody wants to travel during the peak season anymore. Suddenly we are seeing an extension of the season, people want to have a lot of privacy, so villas and suites have become more appealing.”
Littman says that consumers’ expectations of luxury hospitality have also changed – they aren’t after “traditional luxury” or the “white glove treatment” anymore.
Belmond, however, is not changing its approach post-Covid, according to Bieberach, and will continue to focus on acquisitions in Italy “and elsewhere”, as well as the renovation and restoration of its portfolio, with works already begun on Splendido, A Belmond Hotel, Portofino.
“We’re not changing those plans even though there’s ‘noise’ in the market, because the parent of Belmond has a very long-term view on the assets that it owns,” explains Bieberach. “The vision isn’t one of a short-term return.”
All those quoted in the article appeared on stage at the Resort & Residential Hospitality Forum held in Portugal between October 17 and 19, in a session called: Italy: All Eyes on Southern Europe's Star Market.