The hotel sector is poised for a dynamic 2025, following a strong 2024 which saw total transactions in the UK at around £6 billion – aided by a string of portfolio transactions - and in Europe as a whole at around €20 billion.
And with deals exceeding $100 million accounting for 60 per cent of total liquidity in 2024, as highlighted by Christopher Exler, EVP EMEA Hotels & Hospitality Group at JLL, it’s clear that the surge in high-value investments reflects growing confidence in the hospitality sector as a desirable asset class.
Transactions
Looking to 2025, experts predict a high quantum of transactions, driven by individual asset sales and rationalization of large portfolios, offering opportunities for smaller investors to enter the market.
“Last year, there were around 130 different transactions and I think we'll be looking at an excess of that in 2025 with a lot of shake up in some of those big portfolios, says Steven Fyfe, director – capital markets at Savills, adding that the weight of transactions set to carry over from Q4 2024 into Q1 2025 means the year will get off to a very quick start.
Ed Fitch, head of hospitality UK & Ireland at Cushman & Wakefield agrees, noting: “We’ll see the dismantling of some of the bigger, longer-held portfolios which gives a few more entrants a chance to become more important players in the market. There will be more individual/smaller sales rather than big tickets and that means there’s more opportunity to get into the sector or start building up a portfolio in a way that’s probably been limited up till now.”
While Ronald Chan, research director at CBRE anticipates total European volumes for 2025 to hover around the €18 to €20 billion mark, he notes that looking forward in order to push volumes past €20 billion and closer to the 2019 high of €27 billion, there needs to be “a continuation of a reasonable cadence of large portfolio deals, which remain critical in driving exceptional transaction levels as well as a greater pace of larger, single-asset transactions than we have seen in 2024.”
Interest in the sector
Turning to sources of capital moving forward, experts say private equity, family offices and international investors will be key.
For the UK, Fitch says: “I think private equity will be the biggest single source of capital, with classic US private equity vehicles like KKR and Blackstone to make the bulk of it. Another one emerging as a more important source of capital is family money, who would rather take development and planning risk in London than look elsewhere. And although it has been very selective, international capital for the UK is back.”
James Greenslade, director – capital markets at Savills adds: “In the UK particularly, we've seen cross-border investment driving portfolio sales and in 2025, we expect to see continued overseas investment as well as more individual assets transacting.”
And the appeal of European hotels to buyers further afield is growing, says Chan who notes growing internationalization in the buyer composition of capital for hotel investments.
“Cross-border capital surpassed 60 per cent in 2024—a milestone not reached since 2018. This resurgence of global investment underscores Europe’s renewed appeal as a prime destination for hotel assets, outshining regions like APAC and the Americas. Favourable balance supply-and-demand dynamics in the European market are clearly resonating with international investors,” he says.
Dirk Bakker, head of EMEA Hotels at Colliers adds that Middle Eastern and Asian investors are also stepping up as key players with North American and European institutional investors also recalibrating their strategies to benefit from the stabilisation of valuations.
Hotspots
Turning to where interested players are looking to invest their cash, experts note that gateway cities across the UK, Spain Italy and France are expected to remain highly attractive. But they note that cost pressures in the operational landscape may drive investments towards segments that are more insulated from cost concerns, for example hostels, extended stay and luxury.
“Luxury and upper-upscale segments are expected to see significant attention, as investors increasingly target these resilient categories,” says Kenneth Hatton, head of European hotels at CBRE.
“We’ve had people looking into aparthotels and serviced apartments and there’s appetite to do more of that. It’s widely known that where general spending across the economy starts to be put under pressure and disposable income reduces, the safer places to invest are in the luxury market and the limited-service market,” Fyfe adds.
Greenslade also sees continued opportunity in repurposing projects as well as in the budget space. However, Fitch notes that while there’s still some runway in the trend towards conversions, the reticence of some councils to support repositioning could put a dampener on progress.
He adds: “There’s a finite amount of space where they stack up and where the government is in favour, so I think that those that are available within the next six to 12 months will attract really strong interest.”
Challenges
And with hoteliers also having to grapple with not just rising costs but also labour shortages, Fitch notes: “People will be very nervous of anything that employs too many staff. And so I think the strong focus on lean operations brings us back to select service, with extended stay to remain popular even if it’s hard to enter.”
Other challenges include economic conditions. In the UK, Fitch notes that while there was an expectation of cuts in interest rates as inflation was brought under control, the effect of the most recent budget in the UK has been to undermine that. “There will be higher inflation and there will be reticence to reduce interest rates further,” he says.
Greenslade notes: “I think we have some fairly clear signposts that interest rate cuts will continue, albeit perhaps on a slower trajectory than we were expecting.”
Optimistically, Bakker says interest rate cuts anticipated in 2025 are expected to narrow the bid-ask spread and improve liquidity, with stabilising asset values and yield compression to attract fresh capital.
Looking at Europe, Hatton notes that when it comes to hotels, investors are willing to accept lower entry yields in Europe on account of seeing more value-add opportunities, whether in terms of capex, management or roll-out plays.
“While there have been pockets of macro-wariness on slower-growth markets such as Germany or France, there remains a body of investors who feel good about the fundamental demand-supply dynamic for hotel product, even – or sometimes particularly – in those markets,” he adds.
Consumer preferences and ESG
Changing consumer preferences are also shaping investment strategies, with the demand for unique experiences, wellness and sustainable travel to continue to have an impact.
“Boutique hotels and experiential accommodations are key growth areas,” Bakker says.
Hatton agrees, noting that the focus on wellness, and not just at the luxury segment, is driving decisions to invest in assets that can offer better gyms and spas.
ESG and sustainability also remain critical factors especially as new regulations mandating sustainability reporting come into force, with Hatton noting that investors are increasingly looking for assets with strong ESG credentials.
“The sustainability agenda is here to stay in Europe. As sustainability becomes more ingrained in the industry, it’s shaping everything from operational strategies to investment strategies and financing options. The message is clear: hotel investments cannot disregard environmental or social impact in the pursuit of profitability. It’s no longer optional, it’s essential for long-term success.” he says.
Long-term outlook
Looking ahead, the long-term prospects for the hotel sector are optimistic with Hatton predicting sustained growth, driven by rising global wealth, the attractiveness of Europe as a global destination, the return of business travel and the MICE market as well as people increasingly prioritising travel within their discretionary income.
However, Fitch points out that in order to drive dealmaking, there’s a need to be more granular and creative, and to explore opportunities a little different than “what would normally be in your sweet spot.”
As Bakker says: “Moving forward, the EMEA hotel market offers significant opportunities for well-aligned investors but requires careful navigation of evolving challenges and trends.”