It would be understandable for the hotel industry to want to sit back and enjoy the fruits of success this summer. After bouncing back from Covid and soaring to new profit levels, there has perhaps never been a better time to operate or invest in European hospitality. In a recent investor survey, Cushman & Wakefield found that some 94 per cent of investors plan to allocate the same or more capital to European hospitality investments in 2025 compared to last year, underlining confidence in the sector. The number of investors intending to maintain or increase their investments increased by 15 per centage points year-on-year.
While this sentiment is largely driven by “strong recent hotel performances and robust demand”, according to Jon Hubbard, head of hospitality EMEA for Cushman & Wakefield, “it is partly a result of the more favourable interest rate environment, with the European Central Bank slashing rates four times in 2024, and further cuts expected this year,” he adds.
Even significant geopolitical tremors don’t seem to have dampened visitor numbers to the degree predicted. In the first quarter of 2025, there were 452.4 million overnight stays in tourist accommodations across the EU, marking only a slight decline of 0.2 per cent compared with the same quarter of 2024, according to Eurostat.
Focus on resilience
And yet, resilience and disaster-preparedness remain two key topics of discussion among managers and investors. “We take futureproofing very seriously, with a focus on creating assets that deliver both financial and environmental returns,” says Brian Betel, head of direct asset transactions at ActivumSG, the pan-European real estate investment manager which invests in sectors including hospitality, residential, offices and data centres.
While the black swan of the pandemic is an all-too-recent memory for some, physical climate risks, anti-tourism protests and stock-market-crashing tariffs also add a note of currency to the topic.
“We actively monitor for a wide range of localised and systemic risks,” Betel says. “Climate resilience is a key part of our due diligence process. It’s still probably underestimated by the industry in terms of how portfolios are being valued, but it will become increasingly important going forward.”
Betel notes that the company delivered Spain’s first BREEAM “Excellent” rating for a Hampton by Hilton in Barcelona and achieved the country’s highest BREEAM “Excellent” score by points for Nobu Barcelona – “both assets that were acquired or developed during the pandemic” – he adds. “Having these ESG credentials ultimately helps to improve institutional buyer appetite and, in turn, exit values.”
A key theme in the face of climate change is evolving patterns of travel, with tourists reassessing the months in which they prefer to take vacations. Inspired too by soaring room rates in July and August, traditional “low season” spells are gaining in favour.
“Rising temperatures and longer seasons are shifting travel patterns across Southern Europe with increasing year-round visitation, driving demand beyond traditional summer peaks,” Betel notes. “In Spain, we have been actively buying, building, and operating assets having spotted this trend early – the country is predicted to be the world’s most visited tourist destination by 2040, according to Deloitte and Google.” He adds: “We continue to see opportunities, where there are strong market fundamentals and a limited supply of fit-for-purpose hospitality assets to cater to that sustained and growing tourism demand in the country.”
Opportunity in crisis
While the pandemic was a moment of catastrophe for the industry and beyond, Betel underlines the opportunity in crisis. “As an opportunistic investment manager, we view disruptive events not just as risks, but as potential catalysts for value creation. We assume a disciplined and agile approach, drawing on our experience investing across multiple market cycles to underwrite selectively during periods of dislocation.”
That proved essential during Covid’s bumpy ride. “The pandemic tested the hospitality market in the UK, Europe and Asia for deeper and longer than the US where we saw signs of recovery earlier – especially in leisure-driven submarkets. These were trends we predicted we would start to soon see in Europe,” he adds. “In this regard, we capitalised on forced sales by owners under liquidity pressure, acquiring high-quality assets at attractive entry points based on our conviction that travel demand would rebound.”
Political shocks
While president Donald Trump’s Liberation Day announcements might have done only limited damage for now, a number of industry watchers are still alive to the risks of further political and macroeconomic shocks. The Weil European Distress Index, which provides a measure of the level of corporate distress by aggregating company fundamentals and financial market metrics, finds that business conditions in Europe deteriorated in the second quarter of the year. The index indicates an increase in corporate distress as of May 2025, rising to 4.1 from 3.8 in February, marking the highest distress level in nine months.
Germany remains the most distressed market, with levels rising on the previous quarter and year, reaching the highest point since May 2020, in the midst of the pandemic. Corporate sentiment in the UK is also in decline. Volatile financial markets, elevated geopolitical uncertainty and renewed tensions in EU-US relations are all seen as impacting the general business outlook.
While hospitality may look safe from the outside, cracks in business and consumer confidence remain important metrics for future bookings. According to WEDI, retail and consumer goods is now the most distressed sector in the WEDI index, overtaking industrials. The sector has experienced a steep rise in distress over the past quarter, reflecting weak discretionary demand, margin compression and tightening credit conditions across the retail landscape. Distress has, in fact, climbed to its highest level since the global financial crisis in September 2009. Furthermore, real estate now ranks as the third most distressed sector. While the pace of deterioration has eased compared to early 2024, refinancing challenges remain acute. Stabilising valuations and early signs of institutional interest in distressed assets are helping to cap further downside, the report notes.
Financial pressures to sell assets haven’t affected the hospitality sector in the present cycle as much as sectors such as office or retail, apart from high profile ‘crashes’ such as the collapse of Austria’s Signa Group. This saw properties including the Park Hyatt Vienna reach the market at favourable conditions.
For Betel, forced sales are the ‘silver lining’ to the fractious economy. “While distress isn’t as widespread in the hospitality sector compared to other real estate segments, we continue to find pockets of opportunity. These often come in the form of capital structure distress rather than operational underperformance,” he notes.
MSCI data analysing the first six months of the year and the impact of Trump policy also sees Europe benefitting from the ‘fall-out’ of the softening dollar and volatility in US capital markets.
Ashley Lester, MSCI’s chief research officer notes that while in the first half of the 2025 “the US administration announced major changes in its approach to defence cooperation, multilateral trade agreements and tax policy, in response, Europe rolled out its own fiscal expansion, and long-term yields climbed in Germany, the UK and Japan”. MSCI reports that global investors have told them how they will respond to continued uncertainty in the US and increased currency risk – by broadening geographical diversification.