Eighty-six percent of hotel investors plan to allocate the same amount of capital or more to European hotels in 2026 as they did in 2025, according to Cushman & Wakefield's fifth European Hotel Investor Compass, published April 1.

The survey of 74 institutional investors — who collectively deployed nearly €18 billion in European hotels between 2020 and 2025 — found 58% intend to deploy more capital this year. Fifty-four percent will be net buyers; only 7% expect to be net sellers.

Value Add (63%) and Opportunistic (64%) funds show the strongest intent to increase exposure.

Where is capital flowing?

Southern Europe dominates target lists for 2026:

• Italy and the Iberian Peninsula: 78% of investors express high or very high interest
• France: 60%
• UK and Ireland: "very high" interest up 7 percentage points year-on-year

Milan, Madrid, Rome, London and Paris lead the gateway-city ranking. Budapest posted the sharpest year-on-year jump in investor interest at +11%, followed by Nice-Cannes and Berlin (+9% each), Munich (+8%), and Paris and Prague (+7% each).

What are investors demanding in return?

The average target return on equity climbed to 15.6% in 2026, up from 13.6% in 2025 — a 200-basis-point jump that signals tighter underwriting despite easing debt conditions.

Jon Hubbard, head of hospitality EMEA at Cushman & Wakefield, said: "At the same time, equity return requirements have moved higher, with an average target ROE at 15.6%, up from 13.6% in 2025, likely reflecting the increased underwriting uncertainty not withstanding compressed lending rates."

Upper Upscale and Upscale remain the most appealing segments, with 81% of investors reporting high or very high interest. Luxury follows at 69% overall, climbing to 82% among large investors with €200 million or more to deploy.

Financing concerns have eased sharply — down 19 percentage points versus 2025 — but construction costs remain the top challenge, flagged by 68% of respondents as highly or very highly challenging.

How is AI reshaping investment math?

Eighty-one percent of investors expect AI to significantly shape the hotel sector by 2030 or earlier, with the strongest expected impact on Limited-Service (86%) and Full-Service (85%) properties.

The distribution angle carries direct implications for travel sellers:

• 80% expect AI to cut operational costs through efficiency gains
• 65% are optimistic about AI lowering distribution costs via more direct bookings and reduced reliance on OTAs

Hubbard said: "What's striking is how quickly AI is moving from a longer-term theme to an investable value driver with 81% of investors expecting it to significantly shape the sector by 2030. There is an expectation that AI will help reduce operating costs through efficiency gains, and many also see scope to lower distribution costs by accelerating the shift towards direct bookings."

Sustainability premiums persist. Hotels with top-tier ESG credentials — BREEAM Outstanding or LEED Platinum — command a 4.3% average premium from buyers.

What risks are tempering the optimism?

Geopolitical and macroeconomic risks ranked as the second-most significant challenge. Cushman & Wakefield noted the recent Middle East escalation is likely to amplify those concerns on investor agendas.

Hotel performance uncertainty also rose, up 6 percentage points versus 2025, even after 2025's 3.9% RevPAR growth. Investors are deploying more capital but applying greater selectivity to the assets they target.

Hubbard summed up the paradox: "European hotel investment is entering 2026 with renewed confidence and clear priorities: deploy more capital but with greater selectivity."

The next signal to watch is whether the 200-basis-point ROE jump constrains deal flow in secondary markets, and whether AI-driven direct-booking gains begin to compress OTA commissions before year-end.