Fast and strong market recovery in 2022

In 2022 the hotel market returned to a close to normal seasonal pattern and business mix. From a nominal RevPAR perspective, it has recovered fully after the pandemic. The year had a weak start
with the hotel market in a seasonal and restrictions-related holding pattern. Demand increased significantly once restrictions were lifted, initially driven by the leisure segment and with a similar trend to before – with regional cities relatively stronger than major cities. As physical offices were reopened and travel and conference activity increased, the business segment also contributed to demand and occupancy in Europe reaching 46 percent in the first quarter.

The recovery gained strength during the spring. The UK, Denmark and Norway, which lifted their coronavirus restrictions early on, saw stronger development than, for example, Germany and
Finland where reopening happened later and the recovery only really amped up towards the end of the second quarter.

Heading into the summer the occupancy gap between large international cities and regional cities diminished. For Europe as a whole, occupancy reached 70 percent in the second quarter. Average room rates also developed strongly in the spring, driven by pent-up demand in the leisure
segment. Average room rates for weekdays, which rely the most on business demand, also improved gradually after Easter.

This progress was sustained during the summer, mainly driven by strong pentup demand from the leisure segment at weekends and during the holiday period. The staycation trend continued and, in comparison with 2021, significantly higher occupancy rates were noted in major cities, which is explained a significant increase in events. Towards the autumn demand in the business and conference segments improved gradually and reached more normal levels in most markets
towards the end of the third quarter. Intra-European travel, which is important for the hotel industry, normalised at the same time as international arrivals to Europe improved considerably. Occupancy in the third quarter amounted to around 75 percent for Europe as a whole.

The fourth quarter followed the same trend as the third quarter, with slightly lower occupancy than the 2019 level and average room rates settling at a significantly higher level than before the
pandemic. Occupancy in Europe reached 66 percent in the fourth quarter. Demand in the business segment improved but did not fully reach prepandemic levels.

Restrictions determine demand
Hotel demand throughout the pandemic has been heavily linked to the degree
of restrictions – when restrictions were eased hotel demand increased, and vice versa. There is uncertainty about any lasting effects the pandemic may have on, for example, business travel, which will be determined in part by companies’ travel budgets and approach to sustainability, and in part by conference activity competing with digital conference alternatives. Pandox is, however, noticing that recovery in markets that have had longer periods with lower restrictions is reaching 2019 levels, despite the fact that international travel has been limited and that large conferences and events have been on the back burner. The hotel market is complex and demand is driven by a combination of factors. What may at first seem simple becomes significantly more complicated upon further analysis. The reason is that there are multiple subsegments of demand and destination-specific factors playing a significant role. Therefore, relatively large differences were noted between markets in, for example, the same country. The reasons for this include dependence on international demand, location, the effects of government restrictions, the business mix and the attractiveness of a destination for leisure travel.

Further potential in some demand segments
In 2022 demand was strong throughout the domestic leisure segment and demand in the domestic business segment improved significantly as the year progressed. In general, destinations
that are more dependent on international travel had weaker development, in particular those destinations with a larger percentage of long-haul flights. Markets with a high proportion of international conferences and larger events also lagged behind.

Overall, RevPAR at the end of 2022 was back to prepandemic levels (nominally), the difference being that average room rates were higher and occupancy was slightly lower. Some international
demand was still absent and there is therefore still potential for improvement. This is also the case for larger conferences and trade fairs, which take longer to plan and fill up. The lifting of Covid-19
restrictions in China should also lead to increased travel from China to Europe, particularly in the second half of 2023. This will benefit larger, classic tourist destinations and big cities in particular,
but airport hotels by larger airports will also benefit from it.