HVS and HVI Methodology

HVS, the world’s leading hospitality consulting and valuation firm, is pleased to deliver the 2025 Hotel Valuation Index (HVI). The HVI is a hotel valuation benchmark developed by HVS. It monitors annual percentage changes in the values of typically four-star and five-star hotels in 31 major European cities. Additionally, our index allows us to rank each market relative to a European average. All data presented are in euro, unless otherwise stated.

The methodology employed in producing the HVI is based upon actual operating data from a representative sample of four-star and five-star hotels. Operating data from STR were used to supplement our sample of hotels in some of the markets. Projections for a typical 200-room hotel in each city are produced, and appropriate valuation parameters are applied to the EBITD after FF&E Reserve, using our experience of real-life hotel financing structures gained from valuing hundreds of hotels each year. We have also taken into account evidence of actual hotel transactions expectations of investors with regards to future changes in supply, market performance and return requirements.

Highlights

We would have liked to remember the year 2024 for, say, the return to normal on inflation and interest rates. Instead, there was little that could be defined as ‘normal’ during these 12 months. Here are the key highlights of yet another eventful year.

• Despite an increasingly complex geopolitical and economic context, hotel values in Europe gained 2%, on average, as RevPAR remained mostly positive and bottom lines broadly stable. A reduction in the cost of debt also helped.
• The ‘year of elections’ witnessed about half of the world’s population going to the polls to elect a new government. The results of some of these elections, notably in the USA, are already having an impact across the globe. Geopolitical challenges did not abate, with the wars in Ukraine and Israel still raging as the year came to an end.
• The appetite for travel, however, was undented despite such turmoil: Europe remained at the centre of the world in terms of tourism appeal, attracting more than 50 million additional overnights over the year than in 2023 according to Eurostat. A 2% uplift on the previous year and a new record.
• In terms of hotel demand, this led to modest gains in occupancy whilst average rate growth normalised, except for markets with exceptional circumstances. Overall, a decent RevPAR performance for the year.
• Inflation levels continued to abate in Europe, which allowed the ECB to decrease interest rates to prop up anaemic growth across the bloc. The Bank of England also implemented rate cuts, although the UK’s economic picture is also mixed. The prospect of trade tariffs emanating from the USA and possible retributions resulting in global trade wars raises the prospect of a return to inflationary times, which central banks are closely monitoring.
• The ECB wage tracker indicated an increase of around 5% in payroll by the end of 2024. Whilst cost pressures remain a point of concern for hoteliers, margins have felt somewhat more secure as inflation normalised. Tension remains in relation to a potential flare-up of inflation as trade tariffs and employment cost pressures intensify.

Outlook

Hotel performance remained stable in 2024, despite the many challenges ranging from economic issues to geopolitical and climate change-related events. Whilst people’s desire to travel and ‘experience’ remains strong, global commercial real estate will be impacted by shifts in the macroeconomic environment, as trade tariffs might cause inflation to resurface, and thereby also impacting interest rates and economic growth. The fraying of long-standing Western alliances adds to a sense of uncertainty at the time of our publication.

Against this backdrop, however, economists generally predict positive (if modest) global GDP growth for 2025. This, coupled with the strength of tourism globally, but more particularly for Europe, bodes well for the year ahead. Hotels will continue to be a source of opportunity, either because they enjoy strong fundamentals and have proven to be a good hedge against inflation, or because they offer value-add gains through refurbishment and repositioning plays. This potential, coupled with expected further interest rate decreases in Europe, provides a recipe for investment success. On a long-term basis, hotels remain a solid strategy for diversifying core real estate portfolios, as testified by the increasingly varied investor types on the hunt for hotel assets. Momentum for hotels therefore continues.

Charles RG Human, MRICS Chairman - London [email protected] +44 (20) 78 78 77 71