Europe remains fertile ground for brand growth

Fireworks capped last September’s grand opening celebration of the 300-room Hampton by Hilton Warsaw City Center, in Warsaw, Poland, the largest Hampton outside the U.S.

Fireworks capped last September’s grand opening celebration of the 300-room Hampton by Hilton Warsaw City Center, in Warsaw, Poland, the largest Hampton outside the U.S.

When IHG acquired Kimpton Hotels & Restaurants in December, one of the appealing parts of the deal, according to IHG CEO Richard Solomons, was the opportunity to grow the boutique brand outside its U.S. base. So what was the first region Solomons mentioned where this global expansion might occur? “Europe,” he said.

Meanwhile, Accor, already a force in Europe with hundreds of hotels, in October, took a 35-percent stake in a hip new boutique brand called Mama Shelter that will increase its presence in Europe even further. Already established in Paris, Mama Shelter plans to open hotels in London, Zurich, Amsterdam and Barcelona in the next few years.

In announcing the investment, Accor Chairman and CEO Sebastien Bazin described this “new adventure” as a way of building even greater distribution.

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Both IHG and Accor are based in Europe, so it makes sense that they would want to broaden their influence on their home turf. Marriott International and Hilton Worldwide, on the other hand, are among the U.S.-based lodging giants that are also targeting Europe aggressively at the moment.


To many observers, Europe might not at first seem a fertile development opportunity. Many of the region’s economies have been shaky the past few years, birth rates are low and unemployment is high, yet barriers to entry remain high in many markets. These companies, however, still see potential, especially at the economy and broad mid-market price points.

“While Europe may have plenty to be worried about as macroeconomic and socio-political uncertainties dominate the headlines, travel has largely remained resilient. Inbound international as well as domestic ‘staycations’ and business travel have been fairly robust,” said Liz Hall, head of hospitality and leisure research at PricewaterhouseCoopers. 

Marriott saw an unmet consumer need for a youth-oriented economy brand outside the U.S., and chose Europe as the exclusive location for Moxy Hotels. The first, Moxy Milan, located at Malpensa Airport, opened in September. Five more are scheduled to debut in 2015, including three in Germany (Berlin, Munich and Frankfurt) and one each in London and Oslo. Thirteen more are in the pipeline, and Marriott optimistically projects there will be 150 in 10 years.

“The economy sector is the fastest growing segment in Europe,” said Amy McPherson, Marriott’s president & managing director in Europe, when announcing the Milan opening.

Hilton in 2009 and 2010 started targeting Western Europe, where the Hilton name is very well known, and has increasingly moved into Eastern Europe, where there’s less hotel inventory overall and the barriers to entry typically are lower. Given the local economy, a focused-service brand like Hampton (known as Hampton-by-Hilton outside North America to reinforce the Hilton connection), rather than a full-service Hilton, has often taken a lead role.

“We see opportunity, for example, in a market like Poland, where there aren’t a lot of premium branded options. We entered the market initially with airport properties and a seaport town on the Baltic Sea, and have now followed up last fall with a 300-room property in downtown Warsaw. It’s the largest Hampton outside the U.S.,” said Phil Cordell, Hilton Worldwide global head for focused service and Hampton brand management.


Despite travel demand in Europe holding fairly constant, PwC data indicate the supply pipeline going forward showing only modest growth. “Data as of December 2014 shows fewer hotels and rooms under construction than in the 12 months up to December 2013. In fact, there are around 14,000 fewer rooms in the total pipeline [at all stages from construction to planning] than at the same time last year,” PwC’s Hall said.

Overall, there are roughly 900 projects and 140,000 rooms in the European pipeline. Approximately, 56,000 of these are already in construction.

In 2014, supply grew at approximately 1 percent, while demand grew at closer to 3 percent. “This is good for incumbent hoteliers, but averages can be deceptive and some cities have high supply pipelines,” Hall said.

Hall used London and Istanbul as examples, citing STR Global data. Both cities led the pack in Europe with more than 4,000 rooms apiece in construction. Also high on the list are Amsterdam with 2,370 rooms, Berlin with 1,470 rooms and Moscow with 1,030 rooms. The picture is less promising in cities like Manchester and Munich.

To put Europe’s pipeline numbers in context, Lodging Econometrics compares them with the situation in a region like the Middle East, which has less existing supply, lower barriers to entry than in many Western European markets and numerous sources of available capital for financing, not to mention more robust economies.

Moxy Milan, the first hotel of Marriott’s new economy lifestyle brand, which is set to come to the U.S., too.


Moxy Milan, the first hotel of Marriott’s new economy lifestyle brand, which is set to come to the U.S., too.

“In 2014, through the third quarter, the number of projects in the pipeline in Europe increased 9 percent, compared to the same period in 2013. The number of rooms in the pipeline rose 2 percent. By comparison, the number of projects in the Middle East pipeline jumped 20 percent, while the number of rooms was up 10 percent,” according to Bruce Ford, Lodging Econometrics SVP and director of global business development.

Asked about the availability of financing for new construction projects in Europe, PwC Partner Simon Hampton noted that funding was still difficult to obtain. But as in the U.S. and certain other markets following the recession, “it’s a lot easier than it was in recent years,” Hampton said. “In addition, stretch senior and mezzanine/preferential equity is also now quite easily available.”

Forecasting out to 2016, Lodging Econometrics sees 2014 ending the year with 232 new hotel openings in Europe, accounting for 37,500 rooms. Those numbers fall roughly 10 percent to 211 hotels opening in 2015, accounting for 33,190 rooms, and then declining again—slightly this time—in 2016 to 207 hotels opening, though the number of keys rises marginally to 33,360.

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