Hotels

January 2026 Forecast

Long-haul arrivals will grow at a relatively faster pace than short-haul

The sources of growth are shifting. Post-pandemic, most of the rebound was driven by intra-European travel. This year, it will be inbound travel – supported by the continued recovery of long-haul arrivals – that will grow at the relatively faster rate of 6%. From the historically important long-haul markets, arrivals from the US should still be strong (after several robust years), but the rate of growth may ease.

Midyear review

• While long-haul demand remains positive, the expected outperformance vs short-haul is now less pronounced than anticipated in the January outlook. Travel patterns are becoming increasingly divergent, with shifting transatlantic dynamics and redirected demand from the Middle East introducing greater complexity into what had previously been a more uniform long-haul recovery story.
• Short-haul and intra-European travel continue to anchor overall demand, while long-haul routes face growing constraints on airline capacity due to higher fuel costs. These factors have prompted several carriers to revise schedules and reassess capacity on selected long-haul routes. As a result, the recovery of arrivals from Mainland China may progress more gradually than initially expected, remaining below pre-pandemic levels in the near-term.
• Arrivals from the US remained above 2025 levels on a year-to-date basis through June 2026, despite the latest June figure showing a slight year-on-year decline, indicating some moderation in growth momentum. This emerging slowdown is consistent with our current full-year projections and does not, at this stage, alter our underlying outlook.

January 2026 Forecast

Despite healthy demand, RevPAR is expected to see only modest gains

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 occupancy appears to have largely stabilised at current levels.

Midyear review

• Europe's overall RevPAR increased by 4.5% year-on-year YTD June 2026, outperforming the initial full-year forecast. This performance has been driven primarily by ADR growth of 3.2%, alongside modest occupancy gains, contrasting with our expectation of broadly stable occupancy and providing additional upside. These trends indicate that pricing power has been maintained across several markets. However, performance divergence between markets is becoming increasingly evident, making the regional average less indicative of individual market performance.
• Several markets have recorded particularly strong ADR-led RevPAR growth. Milan is one example, where ADR surged by over 60% year-on-year, significantly amplified by demand linked to the 2026 Winter Olympics. Excluding such event-driven and calendar-related distortions, including the earlier timing of Easter this year, underlying regional performance is expected to follow a more moderate trajectory.
• The stronger-than-anticipated H1 performance is expected to be partially offset by demand normalisation following the summer peak period. As a result, growth momentum is likely to moderate in H2, with a more measured trend extending into early 2027.

January 2026 Forecast

Regional dynamics will increasingly differentiate performance, with some CEE markets expecting to outperform

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.

Midyear review

• This divergence between mature gateway markets and higher-growth destinations has continued to materialise throughout H1 2026, albeit with some nuance. Europe's five largest markets – Spain, Germany, Italy, France, and the UK – continue to dominate the region's accommodation and travel landscape, but growth across these established markets is moderating, consistent with a broader normalisation in demand following the post-pandemic rebound.
• Several smaller markets continue to track above this pace. Greece, Austria, Poland, and the Czech Republic have emerged among the most dynamic performers, supported by sustained leisure inflows and a continued broadening of seasonal demand.
• In H2 2026, we continue to expect CEE to outperform, although rising cost pressures may begin to temper margin expansion. Markets with relatively lower ADR bases, a strengthening international profile, and constrained new supply are well-positioned to capture an increasing share of demand, which is itself becoming more regionally dispersed.

H2 2026 Outlook

Rising costs will squeeze margins faster than revenue will grow

While much of the H1 narrative has centred on RevPAR, the more pressing challenge for operators heading into H2 2026 and beyond may lie on the cost side rather than the top line. Labour costs across several major European markets are rising faster than the pace of revenue growth. This dynamic is particularly evident in the UK and increasingly visible across other core European markets. In parallel, parts of CEE are experiencing similarly elevated cost inflation, alongside relatively stronger top line performance.

The cumulative effect of rising labour costs, higher utility expenses, and increasing brand and operator fees is likely to place continued pressure on gross operating profit margins.

This dynamic is not new, but it is intensifying: the post-pandemic RevPAR recovery, which once comfortably outpaced cost growth, has largely run its course. In H2 2026 and beyond, managing the increasing tension between revenue growth and rising costs will be a key priority for operators.

For owners and operators, this shifts the focus towards a more disciplined approach to total revenue management including food & beverage revenues, alongside greater emphasis on operational efficiency. 

Figure 13: Europe's international overnight arrivals by haul (Long-haul vs short-haul index, 2019 = 100)

The segment gap will widen as rate growth slows

As ADR growth across Europe normalises, segment positioning is set to become more decisive than regional averages alone may suggest. The luxury and upper-upscale segments, especially those leveraging lifestyle positioning, are expected to continue benefitting from strong willingness to pay among affluent travellers for curated, experience-led stays, with comparatively limited resistance to further rate increases.

Across the mid-market, rate elasticity is tightening even as occupancy remains broadly stable. For H2 2026, this means ADR-led RevPAR growth will become increasingly difficult to sustain uniformly across segments.

The performance gap between well-invested, differentiated assets and those relying primarily on market-wide pricing momentum is therefore expected to widen. This reinforces the importance of product positioning and ongoing asset enhancement as the most durable drivers of rate resilience over the longer-term.

Figure 14: European hotel operating performance (12-month moving average, YoY %)