The targeted inflation rate, set to reach 2.0% in France by 2025 (European Commission, 2024), motivated three consecutive interest rate cuts to reduce the cost of debt and stimulate economic activity. However, this period has also been marked by political uncertainty due to the dissolution of the National Assembly. With the new government composition lacking a majority, additional pressure is weighing on the French economy. Despite these challenges, the hotel industry remains robust. Profit conversion is showing a positive trajectory, supported by the decrease in energy costs in 2024, combined with top-line growth driven by above-inflation gains in room rates.

2024 will remain marked by the Olympic and Paralympic Games (JOP) in seven French cities, resulting in fluctuations in RevPAR gains showing signs of stabilization or consolidation. The JOP have also accelerated the recovery of international air traffic, with a remarkable 27.7% growth year-to-date from January to September 2024 compared to the same period in 2023 for the Asia-Pacific region. Overall, the rising trend in tourism spending has led to significant gains for the tourism sector, estimated to account for 9% of the French GDP in 2024, up from 4% in 2019 (WTTC).

Political uncertainty in France might dampen investor appetite. However, the sector has successfully refinanced in 2024, and with interest rates declining, the trend is noticeably reversed. Investors are eager to invest even more in the hospitality industry, new funds dedicated to hotel investment are expected to appear on the market. With over 100 hotel transactions in France by Q3 2024, the interest of institutional investors to penetrate the market demonstrates that hotel assets continue to spur interest from a diverse panel of investors who were not previously considering this asset class.

Following the implementation of the Décret Tertiaire in late 2023, investors are spending more time studying the ESG implications when assessing deals. This regulation aims to reduce energy consumption in tertiary buildings, aligning with sustainability goals. As lenders become more stringent on ESG criteria to unlock financing, assets demonstrating strong ESG compliance are likely to benefit from lower costs of debt and will be better positioned to capture the upcoming drop in interest rates.