European hotel investment is expected to increase in 2025, with Madrid, Barcelona and Rome identified as the most sought-after gateway cities, according to Cushman & Wakefield.
The firm’s fourth Hotel Investor Compass survey shows strong investor confidence, with 94% of respondents planning to allocate the same or more capital toward European hotels compared to last year. Investors anticipate a rise in transaction prices, with 70% expecting hotel values to increase in 2025 due to declining capital costs and heightened interest in the market. Italy and the Iberian Peninsula are projected to see the most significant price growth, followed by the UK, Ireland and France.
Investor interest in Prague, Munich, Milan and Edinburgh is also rising. Prague saw the largest increase at 14%, followed by Munich at 8%, with Milan and Edinburgh each up 4%. The Nordics, Central and Eastern Europe and Southeastern Europe have also experienced growing investor attention.
The improving sentiment is partly a result of the more favorable interest rate environment, with the European Central Bank cutting rates four times in 2024, and further reductions expected this year, the study noted.
“European hotel investment is likely to ramp up in 2025, with significant growth in the proportion of investors planning to deploy at least as much capital, if not more, in the year to come,” said Jon Hubbard, head of hospitality EMEA at Cushman & Wakefield. “The improving sentiment is partly a result of the more favorable interest rate environment, with the European Central Bank slashing rates four times in 2024, and further cuts expected this year, but investors also expect capital appreciation across all regions in 2025, driven by strong recent hotel performances and robust demand.
“Despite the backlash against net zero taking place in many parts of Europe, investors are still prepared to pay a significant premium for sustainable assets. ESG credentials are likely to remain a critical determinant of success in hospitality real estate investment going forward, and as such must be factored into investors’ decision-making.”
Return on equity expectations have dropped by two percentage points to 13.6%, supporting a more active transactional market. More than half of surveyed investors plan to be net buyers in 2025, up from 47% last year.
Value-add opportunities remain the primary focus, with investors looking to acquire properties and invest in refurbishments to enhance their worth. Core and core-plus investments have also gained traction, with interest rising 14 and 9 percentage points, respectively, compared to last year’s survey.
Hotels with the strongest ESG credentials are expected to command a green premium, with investors willing to pay nearly 5% more for properties with the highest levels of sustainability certification, such as BREEAM Outstanding or LEED Platinum.
Investor concerns about financing and yields have eased since 2024, reflecting a more stable interest rate environment. The most significant challenges identified by investors are rising construction costs and geopolitical risks, with 65% and 44% of respondents, respectively, highlighting these as major concerns.
Cushman & Wakefield’s survey is based on responses from major investors who have collectively deployed over €16 billion in the European hotel market since 2019.
