In Brief: European hotels saw overall growth in Q1 2026, but this was driven largely by one-off events such as the Olympics in Italy, while mature markets like the UK showed signs of weakening pricing power, and small markets posted inflated growth due to limited capacity.
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Olympics Propel Italian Hotel Growth as UK and Major Markets Show Weakness – Image Credit Unsplash
As reported by HSMAI Europe and MKG, European hotels ended the first quarter of 2026 with positive growth in revenue per available room (RevPAR) for each month. However, this headline growth of +5.7%, +4.1%, and +7.2% across the quarter conceals three different trends: a significant boost from exceptional events, a shift in growth drivers from price increases to higher occupancy, and signs of weakness in established markets. Meanwhile, smaller Central European markets reported high percentage growth, but these figures were influenced by their smaller capacity.
Performance in Major Markets
Among the largest European hotel markets, the United Kingdom displayed the most concerning trend. Despite leading in occupancy rates (ranging from 65.7% to 75.9%) and maintaining a premium average daily rate (ADR) between €112 and €123, the UK experienced three consecutive months of ADR decline (-3.0%, -3.9%, -2.6%). This led to negative RevPAR in January and February. Notably, major events such as London Fashion Week and the BAFTAs did not offset this decline. The data suggests that hotels in the UK are relying on discounts to maintain occupancy, indicating a potential structural loss of pricing power.
Germany showed a modest recovery. RevPAR improved from -2.1% in January to +3.2% in February, buoyed by the Berlinale and European Film Market, and settled at +1.4% in March. However, Germany’s ADR remained low (€93-102), below the average for major European markets. The Berlinale’s positive impact was largely confined to Berlin and did not significantly affect national results.
France reported the most stable performance among the major markets, with RevPAR growth of +2.7%, +3.3%, and +4.3% over the quarter. Occupancy increased each month, and ADR remained steady between €110 and €116. While events like Paris Fashion Weeks and MIPIM produced local spikes in demand, their effect was diluted when averaged nationally. The data for March suggests that increased occupancy, rather than higher prices, is becoming the main driver of growth in France.
Impact of the Olympics and Event-driven Growth
Italy’s hotel sector experienced the most significant growth, driven by the Milan-Cortina Olympics and other major events. RevPAR rose by +12.6%, +53.0%, and +8.7% over the quarter. In February, ADR surged to €196, up 46.1% year-over-year and 67.8% from 2024, while occupancy climbed to 70.7%. This growth was almost entirely due to higher prices, a typical pattern during events with limited capacity. The Olympic Games, the Venice Carnival’s Olympic-themed edition, and the rescheduled Sanremo Festival all contributed to this effect.
In contrast, neighboring Croatia saw a 14.6% drop in RevPAR in February, indicating that the demand generated by the Olympics was contained within Italy and did not spill over into nearby countries.
Small Markets and Growth Interpretation
The highest growth rates were reported in smaller markets, where limited hotel capacity can exaggerate percentage increases. For example, Slovenia recorded growth rates of +18.6%, +19.2%, and +26.3%, but these gains were based on a small inventory. Croatia’s 30.5% increase in March came with an absolute occupancy rate of just 47.8%. Malta experienced large fluctuations due to seasonality. These figures highlight that high percentage growth in small markets does not necessarily indicate strong absolute performance.
Shift from Price to Volume and Outlook
Across Europe, the main driver of RevPAR shifted during the quarter. January saw a balance between price and volume; February was dominated by price increases due to the Olympics; and March saw a pivot toward occupancy growth, with 14 of 26 markets reporting higher occupancy rates.
Looking ahead, analysts note that if the Olympic effect is removed, European hotel performance would be nearly flat. The decline in the UK and similar trends in Belgium, the Netherlands, and Austria require close monitoring to determine if these are temporary or indicate a lasting loss of pricing power. Italy faces the challenge of adjusting after the Olympic surge. The move toward volume-driven growth in March will be a key indicator for Q2: if sustained without major events, it could signal a structural recovery, but if not, it may point to a more difficult period ahead.
