The fourth edition of the annual Hotel Investor Compass report confirms that the major cities of Mediterranean Europe remain at the centre of investors' attention, with Madrid, Barcelona and Rome the most attractive destinations overall. Among the cities with the largest year-on-year increase in interest are Prague (+14%), followed by Munich (+8%), Milan (+4%) and Edinburgh (+4%).
The survey, conducted among investors who have allocated more than EUR 16 billion since 2019 in the sector, shows that 70 per cent expect hotel prices to rise in 2025, due to lower cost of capital, increasing hotel performance and rising investor demand in a context of product scarcity.
The most significant value increases are expected in Italy and the Iberian Peninsula, followed by the UK, Ireland and France.
94% of investors plan to allocate the same or more capital to European hospitality investments in 2025 than last year, a sign of growing confidence in the sector. The number of investors intending to maintain or increase their investments increased by 15 percentage points year-on-year.
Jon Hubbard, Head of Hospitality EMEA for Cushman & Wakefield, says: European hotel investment is likely to ramp up in 2025, with significant growth in the proportion of investors planning to deploy at least as much capital, if not more, in the year to come. The improving sentiment is partly a result of the more favorable interest rate environment, with the European Central Bank slashing rates four times in 2024, and further cuts expected this year, but investors also expect capital appreciation across all regions in 2025, driven by strong recent hotel performances and robust demand.
“Despite the backlash against net zero taking place in many parts of Europe, investors are still prepared to pay a significant premium for sustainable assets. ESG credentials are likely to remain a critical determinant of success in hospitality real estate investment going forward, and as such must be factored into investors’ decision-making.
Italy leading the sector's growth in Europe
The European survey confirms the growth trend of the hospitality sector in Italy and its relevant position in the broader European context. According to data from Cushman & Wakefield, in 2024 Italy, with over 2 billion euros invested in hospitality, was positioned among the top four European countries, after the UK and the Iberian Peninsula, very close to the volumes recorded in France (2.4 billion euros). Preliminary figures for the first quarter of 2025 confirm this positive trend.
Francesco Calia, Head of Hospitality Italy at Cushman & Wakefield, comments:
In Italy we expect a record 2025 for real estate investment. Hotels are now the second largest asset class in terms of capital invested in real estate and preliminary figures for the first quarter of 2025 show more than half a billion volumes, which, if confirmed, would be the best first quarter in the last twenty years. Today we see transactions in due diligence with a total value of an additional EUR 2 billion. Most of this capital is for asset value add and is concentrated in the country's major cities and tourist destinations. Rome and Milan are among the most sought-after, along with the main lakes, Taormina and the eastern Sardinian coast, while Naples and Palermo are emerging as new markets of interest, thanks to the ability to record top performances for hotels in the two cities"
Investment strategies and growth prospects
The increasing confidence in the sector is underlined by investors reporting lower return on equity requirements in 2025, reducing by two percentage points to an average of 13.6%, a boost for the investment market that should also support further growth in hotel values.
Also at the European level, The most sought-after investment targets are value add opportunities, where investors seek to acquire assets and invest in their refurbishment to increase their value. However, investors are also increasingly targeting core and core-plus investments, with these investments up by 14 and 9 percentage points respectively compared to last year’s survey. More than half of investors (55%) plan to be net buyers in 2025, up from 47% last year.
Hotels with the strongest ESG credentials are projected to command a significant “green premium”, with investors expecting to pay nearly 5% more for properties achieving the highest level of ESG certification such as BREEAM Outstanding or LEED Platinum ratings.
Challenges and risk factors
Investor anxieties about financing and yields have decreased since 2024, partly due to the more favourable interest rate environment. The top challenge identified by investors is now escalating construction costs followed by geopolitical & macroeconomic risks, with 65% and 44% of respondents finding them highly or very highly challenging, respectively.
