Geopolitics and Inflation Risks Shadow Europe’s Hotel Values

Hotel values across Europe were broadly unchanged through 2025, according to the newly released HVS 2026 European Hotel Valuation Index, as resilient travel demand collided with renewed geopolitical tensions and a shifting inflation outlook.

Flat Values Mask Strong Demand and Pricing Power

The latest HVS index reports that average hotel values in Europe inched up by just 0.2 percent in 2025, a sharp moderation from the 2 percent rise recorded in 2024. The figure reflects the drag from higher financing costs and investor caution, even as most European markets continued to benefit from robust tourism flows and still-elevated room rates.

Publicly available data from HVS indicates that occupancy levels continued to climb across much of the continent, with many cities now comfortably above 2019 benchmarks. Average daily rates remained supported by strong leisure demand and the gradual recovery of corporate travel and meetings business, helping preserve operating margins despite wage and utility pressures.

Analysts note that this divergence between operating performance and asset values has become a defining feature of the post‑pandemic cycle. While revenue per available room has proved surprisingly resilient, the higher interest rate environment and tighter lending conditions have compressed pricing, particularly for assets with near‑term capital expenditure needs or weaker brand positioning.

For owners and prospective investors, the 2026 index underlines that income growth alone is no longer sufficient to guarantee capital appreciation. The report highlights that underwriting assumptions around cost inflation, interest cover and exit yields now play a greater role in determining achievable prices than in the years of ultra‑low borrowing costs.

Wars, Elections and Energy Prices Weigh on Investor Sentiment

The 2026 edition situates hotel valuations against a backdrop of ongoing conflicts on Europe’s periphery, heightened tensions in the Middle East and a change of leadership in the United States. These developments are cited as contributing factors to a more uncertain macroeconomic environment, with knock‑on effects for cross‑border travel flows, currency movements and risk premia.

New volatility in energy markets has added to the sense of fragility. Recent market commentary shows European natural gas prices jumping sharply in early 2026 following escalations in the Middle East, reviving concerns that any sustained rise in fuel costs could filter through to headline inflation and operating expenses. For hotels, this raises the prospect of renewed pressure on utility bills just as many markets had begun to normalise post‑pandemic cost structures.

At the same time, a full calendar of national elections across major European economies and in the United States has led investors to reassess political risk. Shifts in fiscal policy, tourism promotion and visa regimes remain in focus for owners reliant on long‑haul demand. According to industry commentary, uncertainty around future trade relationships and security commitments is encouraging some investors to prioritise core city locations and proven demand generators.

The combination of geopolitical flashpoints and slower economic growth expectations has prompted a more selective approach to acquisitions. While capital remains available for high‑quality assets in gateway cities, secondary markets and properties with complex repositioning stories are being scrutinised more closely, which in turn is reflected in flatter valuation trajectories.

Inflation Risks Resurface as Cost Pressures Evolve

The HVS 2026 index is released at a moment when inflation in the eurozone has shown signs of reaccelerating after a period of moderation. Public data and market discussion point to renewed price pressures stemming from energy and certain food categories, complicating the outlook for central bank policy and borrowing costs.

For hotel operators, the inflation narrative has shifted from acute post‑pandemic spikes in labour and construction to a more nuanced pattern of lingering wage demands and volatile input prices. Many properties responded in 2023 and 2024 by aggressively repricing rooms and reconfiguring services, from housekeeping schedules to food and beverage offerings, to protect profitability.

With rate growth now slowing in many mature destinations, the capacity to continue passing higher costs to guests is becoming more constrained. The index underscores that further unanticipated inflation could compress margins, particularly for full‑service and resort properties with energy‑intensive amenities such as pools, spas and extensive public areas.

From a valuation standpoint, higher and more uncertain inflation complicates discount rate and exit yield assumptions. Some institutional investors are focusing on assets with built‑in inflation hedges, such as those in markets where pricing power has historically tracked cost indices, while others are stress‑testing pro forma cash flows against more adverse cost and interest rate scenarios.

City‑Level Winners, Laggards and the New Geography of Risk

Beneath the near‑flat European average, the 2026 HVS index points to marked divergence between individual cities. Markets in southern Europe and select leisure‑oriented destinations once again outperformed, supported by enduring appetite for sun, culture and gastronomy and relatively limited new hotel supply.

Prior HVS releases highlighted Athens, Lisbon and Madrid among the strongest performers in 2024, each benefiting from double‑digit or high single‑digit value growth on the back of rising air connectivity and strong international visitation. More recent commentary suggests that while growth has cooled, many of these markets continued to outpace the continental average in 2025 as travellers prioritized destinations perceived as safe yet vibrant.

By contrast, several central and northern European cities saw only marginal movements in asset values despite solid fundamentals. Earlier HVS market briefs noted that cities such as Hamburg and Stockholm recorded modest valuation gains in 2024, and the new index indicates that similar patterns persisted into 2025 as slower corporate demand recovery and higher operating costs offset occupancy improvements.

Across the region, destinations more exposed to industrial cycles or reliant on long‑haul and group segments appear more sensitive to geopolitical headlines and currency swings. Investors are reported to be reassessing risk profiles at the city level, paying closer attention to diversification of source markets, infrastructure pipelines and exposure to sectors such as energy and manufacturing that may be directly affected by geopolitical disruptions.

Transactions, Capital Flows and the Road Ahead

While headline valuations barely moved in 2025, transaction data suggests that Europe’s hotel investment market has continued to heal. Earlier HVS research on 2024 activity recorded a more than 60 percent year‑on‑year surge in deal volume, signalling renewed confidence after several years of subdued trading and price discovery.

Industry coverage indicates that momentum carried into early 2025 and 2026, with investors targeting both prime city assets and well‑located resorts. The United Kingdom, Spain, France, Italy and Germany have remained among the most active markets, underpinned by deep domestic investor bases and strong tourism brands.

Looking ahead, the 2026 European Hotel Valuation Index frames the outlook as a balance between supportive structural factors and elevated macro risks. On the positive side, Europe’s tourism appeal remains strong, supply pipelines are generally modest by historical standards, and many hotels have adapted their operating models to a higher‑cost world. On the risk side, any escalation in regional conflicts, renewed energy price shocks or a more persistent inflation upturn could quickly alter financing conditions and investor sentiment.

For owners and lenders, the message of the latest index is one of cautious resilience. The continent’s hotels are benefiting from travellers’ enduring preference for European destinations, but capital values in 2026 are being set as much by geopolitics and inflation expectations as by day‑to‑day trading performance.