Savills anticipates creative deal-making in European hotel market

Savills anticipates a surge in innovative deal-making within the European hotel investment market over the next two to three years.

Their research indicates a rebound in investment volumes, reaching €23.6 billion in 2025, a 4.8% year-over-year increase. This renewed investor confidence is attributed to improved liquidity, more aligned pricing expectations, and resilient revenue per available room (RevPAR) performance, which is up 5.4% compared to 2019 (adjusted for inflation).

The report highlights a growing interest in value-add strategies and predicts that capital constraints will lead to more mergers and acquisitions, structured transactions, and partnership-driven deals. Savills identifies this period as "opportunity-rich" for the sector.

Several key themes are expected to shape the market. Operational performance is becoming the primary driver of returns, as narrow yield-to-debt spreads emphasise the need for operational excellence and the ability to navigate late-cycle market conditions. Savills notes a widening gap between average and best-in-class operators, making operational capability a crucial factor in investment decisions.

The German hotel market is nearing a turning point. Despite being Western Europe's most challenging post-pandemic hotel market, with 2025 RevPAR still 11% below 2019 levels, supply growth is significantly slowing. The leased operating model is particularly strained, experiencing an increase in tenant insolvencies. These factors create compelling opportunities for well-capitalised, long-term investors willing to support market transition.

Investors continue to prioritise prime, irreplaceable assets, with the luxury segment outperforming the broader market. The connection between luxury hotels and branded residences is also strengthening, with the number of such schemes in Europe growing from 18 in 2015 to 62 in 2025, and projected to double again by 2032.

Major global hotel groups have expanded rapidly, nearly tripling their average brand portfolios over the past decade. This growth has been accompanied by a substantial increase in "key money," reaching US$1.2 billion in 2025 across the five largest operators. As market conditions evolve, Savills foresees a potential shift from purely asset-light growth towards "investment-right" models. This would involve selective capital participation and deeper partnerships to support future expansion.

David Kellett, head of Hotel Capital Markets EMEA at Savills, said: “While the operating and capital environment is more complex than in previous cycles, the structural fundamentals of travel and hospitality remain highly compelling. Demand continues to prove resilient, high-quality assets are attracting deep pools of global capital, and hotels retain a unique ability to adapt through the cycle. For investors prepared to look beyond near-term noise, this remains a sector that is rich in opportunity.”

Thomas Emanuel, head of Hospitality Thought Leadership, EMEA at Savills, added: “Whether through recapitalisations, platform transactions, lease restructuring, co-investment or partnership-led strategies, the next wave of activity will be shaped by innovation and collaboration rather than purely by price. We are confident in the hotel sector’s ability to deliver durable, risk-adjusted returns for those willing to engage thoughtfully and decisively.”