Luxury and ‘Budget’ hotels are ‘Stars’ of the investment market

Luxury and “budget” hotels are those which promise the best returns and the best prospects in the current European hotel market, according to the latest Catella Market Tracker. 

The report says that the European hotel market has experienced a clear change in recent years in hotel structure, in which two formats emerge as ‘winners’ in this development, in a context where, in 2016, about 17.8 billion euros were invested in the hotel business. This year, growth is expected over all of Europe, especially in Spain, Germany, Austria and Sweden.

On the other hand, hotels are an increasingly important diversification element of portfolios. Budget hotels are the ‘new stars’, say Catella, once considered a niche product. They are a recent class of assets, aimed at a modern society, for travellers who love technology or for a youth culture with certain expectations in terms of design, together with a pronounced sense of value for money. Greater digital support in place of human labour also characterise this kind of hotel. They are normally located near the city centre, near transport hubs, for example, and are suited for short stays. Reduced labour costs and high occupancy rates make this sector very attractive, as well as lower construction costs.

Both budget hotels and luxury hotels are the ones offering the highest profits, as they are an already fungible investment product. However, the luxury segment offers different installations, with 24hour service in locations that may not be central. As they takings are higher, they are especially attractive to investors, even more so because, according to demographic forecasts, demand for the top segments should continue to increase.

One thing that both types have in common is the need for digitalisation by investors, and everything begins with looking for a hotel. The report states, “The pace at which the hotel industry will continue to move towards digitalisation will become apparent. The online market will further enhance its position and be a critical factor in the survival of existing companies.”

In the same report, it can also be seen that, “as a result of demographic change, another trend will remain in place, namely the growing proportion of short trips and city breaks. Demand for hotels must be met by a further expansion in effective supply here, opening up numerous investment opportunities.”