Geopolitics and Inflation Risks Shape Outlook in HVS 2026 European Hotel Valuation Index

Europe’s tourism sector continued to demonstrate resilience in 2025 despite geopolitical upheaval, shifting economic policies, and persistent global uncertainty. Record travel demand, stabilizing hotel performance, easing wage pressures, and supportive monetary policy helped sustain industry momentum, although inflation risks and geopolitical tensions remain potential headwinds for 2026.

European Tourism Shows Resilience Amid Global Upheaval

The global travel and tourism sector navigated a year of geopolitical and economic disruption in 2025, yet demand for travel remained resilient across Europe. Against a backdrop of ongoing conflicts, shifting geopolitical alliances, and evolving economic policies, the tourism industry continued to benefit from strong consumer interest in travel and steady performance in the hotel sector. The year was marked by significant global changes, including new leadership in the United States, which influenced longstanding geopolitical relationships and contributed to shifts in international economic alignment. At the same time, tariff disputes and global instability reshaped trade dynamics across several regions.

Economic and Geopolitical Developments Influence the Sector

Changes in geopolitical power balances prompted a renewed focus on strategic military capabilities across Europe. Economic activity in the Eurozone also exceeded expectations, particularly in the private sector, where manufacturers reported their strongest performance since 2022. Germany, the European Union’s largest economy, continued expanding its industrial base as government spending increased in areas such as defense and infrastructure. These developments contributed to broader economic momentum across the region, helping support travel demand and tourism activity. Despite global tensions, the appetite for travel remained strong. Europe continued to attract more than half of all international travelers worldwide. The region recorded another record year for overnight stays, surpassing 3 billion hotel overnights, according to Eurostat data. This represents a 2.3 percent increase compared with 2024, with approximately half of those stays attributed to international visitors. Pre-pandemic tourism peaks recorded in 2019 are now significantly exceeded.

Hotel Performance Stabilizes Across Europe

The European hotel sector entered a more stable phase following the strong revenue gains experienced during the post-pandemic recovery period. In 2025, average room rates increased modestly across many markets, while small gains in occupancy helped support overall revenue growth. These improvements resulted in positive top-line performance for many hotel operators across the region. At the same time, the development pipeline for new hotel projects in Europe remains relatively limited by global standards, averaging below five percent of existing supply. This moderate development pace may help maintain favorable supply-demand dynamics in the near term.

Interest Rate Cuts Provide Economic Support

Monetary policy also played a role in shaping the economic environment for tourism and hospitality businesses. During the first half of 2025, the European Central Bank reduced interest rates from 3 percent to 2 percent to support economic activity across the Eurozone. The Bank of England implemented four rate cuts during the year as well, although economic conditions in the United Kingdom remain relatively weak compared with other parts of Europe. However, the possibility of renewed inflation remains a concern. A prolonged conflict in the Middle East could constrain global oil supplies and push energy prices higher. If inflationary pressures return, central banks may reconsider their easing policies, with some analysts already suggesting the possibility of rate increases in 2026.

Labor Cost Pressures Begin to Ease

Wage growth pressures within the hospitality sector also began to moderate during 2025. According to the European Central Bank’s wage tracker, payroll growth fell to below 4 percent by the end of the year, compared with levels closer to 5 percent in 2024. Forecasts suggest wage growth could slow further to below 3 percent in 2026. While this trend may help relieve some operational cost pressures for hotel operators, broader cost concerns remain, particularly if geopolitical developments disrupt global energy markets. For hotel owners and operators across Europe, the current outlook reflects a sector balancing strong travel demand with ongoing macroeconomic uncertainty. Continued resilience in travel demand, combined with moderate supply growth and stable economic policy, suggests the region’s tourism industry remains well positioned heading into the coming year, even as external risks persist.

Hotel Investment Activity Reinforces European Valuations

Investment activity across Europe also provided important signals for hotel valuations during 2025. According to HVS, transaction volume reached €22.6 billion during the year, representing a 30 percent increase compared with 2024. Despite the strong rebound in deal activity, total transaction volume remained approximately 17 percent below 2019 levels, indicating that the market is still recovering toward pre-pandemic investment benchmarks.

Single-asset hotel transactions played a major role in the recovery, rising 68 percent year over year to €15.6 billion. Several large transactions highlighted investor confidence in prime European hospitality assets, including the sale of the 1,037-room Mare Nostrum Resort in Tenerife for €430 million, the 192-room W London in October 2025, and the Pullman Montparnasse in Paris for approximately €300 million. Portfolio transactions also returned to the market, most notably the €1.4 billion acquisition of Dalata Hotel Group by Swedish group Pandox AB and Norwegian investor Eiendomsspar AS.

The United Kingdom remained the most liquid hotel investment market in Europe despite transaction volume declining 10 percent year over year, accounting for roughly 25 percent of total deal activity. France and Spain followed as the next most active markets, recording year-over-year growth of 73 percent and 25 percent, respectively.

Buyer profiles also reflected shifting investment strategies. Owner-operators were the most active buyers during 2025, acquiring €1.5 billion more in hotel assets than they sold. Hotel investment companies were the largest net sellers at €696 million. High-net-worth individuals recorded the highest average acquisition price per room at approximately €559,000, highlighting continued investor appetite for premium European hospitality assets.

These transaction patterns provide important context for the European hotel valuation environment, as increased investment liquidity and investor competition typically support asset pricing and long-term value growth across the region.

Download the 2026 European Hotel Valuation Index, by Sophie Perret , Margherita Rivetti , Maxime Gauthier