The European hotel investment market staged a strong comeback in 2025, with transaction volumes reaching €23.6 billion, according to data from Savills. This marks a rebound from subdued activity in recent years, driven by improved market conditions and more realistic pricing expectations.
Liquidity has improved in both equity and debt markets, making it easier to close deals. The gap between seller expectations and buyer offers has narrowed significantly, allowing more transactions to close. Macroeconomic stability throughout 2025, including steady interest rates across the Eurozone and consistent employment figures, created a favorable environment for hotel investment.
London, Paris Lead Transactions
The United Kingdom led the continent in hotel transactions, accounting for €5.7 billion in deals during 2025. London alone represented about 15% of all European hotel transaction values, underscoring its status as the region’s most active and liquid hotel investment market.
“London is still the city for European hotel transactions,” says Thomas Emanuel, Head of Hospitality Thought Leadership for EMEA at Savills. The UK remains the most liquid market in Europe, attracting both domestic and international capital.
Paris was the second most active city, accounting for roughly 10% of European transaction volumes. France as a whole generated €3.6 billion in hotel transactions, matching Spain’s total. Spain has cemented its position as a top investment destination, thanks to strong performance in both urban centers and popular resort areas, including the country’s islands. This operational strength has boosted investor confidence and kept Spanish hotel deals at elevated levels.
Capital Grows More Selective
Today’s market is defined by increasingly selective capital. Investors are focusing on asset quality and operators’ ability to deliver consistent financial results. This has created a wider gap between top-performing properties and those with weaker fundamentals.
“Capital is getting very selective,” Emanuel says, highlighting that investors are prioritizing operational excellence and proven management. Investors are pursuing “flight to quality” strategies, emphasizing prime locations and unique assets that are difficult to replicate.
Luxury hotels have been particular beneficiaries of this approach, as they continue to see strong demand and retain pricing power. Investors are scrutinizing operator selection and seeking partners with proven track records, viewing asset management as a critical driver of returns. This marks a shift from acquisition-focused strategies toward those emphasizing ongoing operational performance and long-term value.
Brand Proliferation Widens Choices
The hotel sector is experiencing rapid brand expansion, with major global operators introducing new concepts to reach a wider range of guests. Marriott, Hilton, Hyatt, IHG, and Accor, the five largest international hotel companies, now collectively manage 159 brands, a notable increase compared to five years ago.
Hotel groups are working to expand their loyalty programs and ensure they offer something for every market segment. The growth includes lifestyle, soft, and collection brands, giving investors more options when selecting brand partners.
The industry’s emphasis on asset-light strategies means brands are focused on expanding their networks and increasing net unit growth, rather than owning properties directly. The asset-light strategy offers investors greater flexibility in brand selection but requires careful evaluation of a brand’s positioning, guest appeal, and operational support. More choices require investors to assess which brands best suit each asset and market carefully.
Germany Offers Contrarian Opportunity
While the spotlight remains on established markets like the UK, France, and Spain, Germany is attracting investors willing to look beyond short-term challenges. The German hotel market has lagged behind its pre-pandemic performance, mainly due to its reliance on corporate travel and events, as well as disruptions to its traditional fair calendar.
Economic headwinds in Germany have hit operators on traditional lease structures especially hard, leading to more insolvencies and financial distress. However, this situation may create opportunities for investors willing to adopt more collaborative agreements, such as management contracts, instead of fixed leases.
“We actually think that it could be a bit of a contrarian call,” Emanuel says, suggesting Germany could present attractive opportunities for 2026 and beyond. Before the recent downturn, Germany routinely generated €5 billion in annual hotel transactions alongside the UK, but volumes have now dropped to about half that level. As the market adopts more flexible operating structures and economic conditions stabilize, significant upside potential could emerge for early movers.
Rising Costs Squeeze Valuations
Rising operating costs continue to affect hotel valuations across Europe, but market participants are factoring these pressures into pricing. Energy costs remain high, and new government policies in various countries are adding to hotels’ expense burdens.
In the UK, recent business rate revaluations have raised costs for thousands of hotels. Minimum wage hikes have outpaced inflation not only in the UK but also in markets like Germany, putting additional pressure on operating margins. These cost increases come as revenue growth slows after several years of strong post-pandemic recovery.
“We’re in a late RevPAR cycle,” Emanuel notes, referring to the revenue per available room metric that tracks hotel performance. After several years of robust RevPAR growth, gains are now moderating. Professional valuers are taking these cost and revenue dynamics into account, ensuring that hotel assets are priced with a realistic view of the challenges ahead.
Geopolitical Risks Temper Optimism
Despite ongoing geopolitical uncertainties, particularly those related to conflicts in the Middle East, industry sentiment is cautiously optimistic. The long-term drivers of travel and tourism remain strong, with consumers increasingly choosing to spend on experiences rather than goods.
“The underlying trend for travel and tourism is a long-term mega trend, going back 50 to 60 years,” Emanuel says. Continued traveler demand supports steady interest in hospitality assets, even during periods of volatility.
Europe’s hotel market also benefits from its diversity. Different regions and property types respond to different demand drivers, providing resilience. Mediterranean resorts have seen particularly strong growth since the pandemic, while Nordic markets are expanding due to different demand patterns.
Looking toward 2026, the main risks for the sector are macroeconomic shifts and geopolitical events that could disrupt travel flows or impact capital availability. However, the industry’s broad foundation and diverse demand base position it well for further growth. Investors who identify quality assets and partner with strong operators are best positioned in this environment.
A New Investment Standard
The rebound in European hotel transactions signals renewed confidence in the sector. Investors are now more selective, focusing on high-quality assets in prime locations and working with operators who can deliver consistent performance in a more challenging operating environment.
Operational strength, brand flexibility, and a nuanced approach to asset management are now essential. The market is rewarding those who adapt to the new standards of operational excellence and asset quality, while properties that lag in quality or operational execution may continue to struggle.
As the European hotel sector moves through 2026, the ability to identify and execute on quality opportunities, rather than simply chasing volume, will define the next phase of growth. The recovery is real, but so is the need for a disciplined, operationally driven investment strategy.
About the Expert: Thomas Emanuel is Head of Hospitality Thought Leadership for EMEA at Savills, where he analyzes investment trends and market performance across the European hotel sector. He specializes in providing data-driven insights on transaction activity, capital flows, and strategic positioning within hospitality real estate markets.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
