3 Minute Read
Healthy demand-supply dynamic underpins a more measured growth outlook in 2026
After the double-digit growth years post-pandemic, Europe’s hotel sector should see measured growth in performance in 2026.
Central to growth in inbound figures is the revival of international business travel, which is forecast to see 10% year-on-year growth in 2026. On the leisure front, domestic growth remains slightly more important: inbound travel is expected to see 5% growth, while domestic is still forecast at a robust 7%.
From a supply perspective, hotel development remains broadly disciplined across Europe.
There are differences between markets, with the UK and Portugal showing modest pipeline ratios of c. 5% to 6% of existing supply, while markets like Ireland, Romania, and Poland see ratios of 7% to 10%. Nevertheless, most of the key European markets show low projected supply over the medium-term relative to historical averages. Across Europe as a whole, the projected five-year CAGR on room-night demand and travel spend significantly outstrips the same-period projection for growth in supply.
Despite the healthy demand dynamic, hotel performance is expected to see only modest gains, with Europe-wide Revenue per Available Room (RevPAR) forecast to increase by c. 1% to 3%. Growth will stem primarily from marginal Average Daily Rate (ADR) improvements in higher-growth markets, as occupancies appear to have largely stabilised at current levels. Some CEE markets are expected to perform more strongly, benefitting from strong seasonal demand, disciplined new supply, and competitive pricing. In contrast, many Western European gateways may see more stable RevPAR levels on the basis that they have ADR levels that are already high, in an environment where, for many segments, there is growing price sensitivity among travellers.
Figure 8: European hotel performance, air passenger, GDP and CPI trends (Index, 2019 = 100)
Definitions: Occ = Occupancy, RevPAR = Revenue per Available Room, ADR = Average Daily Rate.
Trends to watch
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Shifting demand pool
The composition of travel demand is set to evolve further. Leisure travel will remain the main driver, while corporate travel is expected to strengthen as business events and international meetings continue to grow beyond pre-pandemic levels. The trend towards blended travel and extended stays is likely to deepen, benefitting lifestyle-oriented hotels that can seamlessly cater to both work and leisure needs within a single product, especially in destinations that are attractive for both corporate and leisure demand.
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Differentiated performance
Hotel performance may become increasingly differentiated across destinations and segments. Location type and brand positioning will play a more decisive role in shaping outcomes. Luxury and upper-upscale properties are expected to retain stronger pricing power in key gateways such as Paris, Milan, and Madrid, whereas midscale urban hotels may continue to face pressure from elevated operating costs and tighter margins.
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The renovation imperative
Renovation activity, which peaked before the pandemic, fell sharply during COVID and remained muted through 2023–2024 amid surging inflation that affected construction costs. While renovation costs remain stubbornly high, after a period of relative under-investment, the imperative to implement renovation projects will become much stronger for many owners if competitiveness is to be maintained.
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Social currency
Social media will continue to shape destination appeal, particularly among younger travellers. This audience is drawn to hotels and locations with strong visual and social currency, where design, ambience, and F&B presentation translate into shareable moments and peer recognition. For operators, understanding and leveraging this influence will become increasingly important, as strategic engagement can amplify brand visibility and accelerate the rise of emerging destinations.
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The AI impact
The growing use of AI platforms, which now have the ability to generate entire travel itineraries based on user prompts, represents another challenge and opportunity for the brands. They must ensure that their products are being distributed through these new channels, too, and ideally by drawing on the social media assets already in play.