Shockwaves and Tailwinds: The Real Commercial Impact of Middle East Tensions

Ongoing geopolitical tensions across the Middle East are having a real commercial impact on hospitality, tourism and leisure businesses worldwide. Uncertainty is now shaping how travellers make decisions — where they go, how far ahead they book, and how confident they feel about travel at all.

Airspace restrictions and rising operating costs have dampened visitor demand in some regions, while destinations seen as safer alternatives — particularly in Southern Europe, Asia and the Americas — are picking up displaced demand, especially at the luxury and ultra-luxury end of the market, notoriously oblivious of geopolitical tensions.

Investors and developers are also treading more carefully. Higher perceived risk is slowing project financing, pushing up borrowing costs and drawing capital toward more established markets. Flexibility, crisis preparedness and diversification have moved up the agenda for anyone evaluating new opportunities.

That said, the underlying fundamentals of global tourism remain strong and markets are getting used to living in a "permacrisis". Businesses with resilient operations, diversified source markets and sound risk management are well positioned to weather the current environment — and to move quickly when conditions allow.

It’s a great relief that there are now signs of a lasting peace in the GCC, which will bring stability back to a region which has driven significant growth in hotel supply, particularly in the luxury sector. 

While geopolitical tensions inevitably create uncertainty, we have seen capital pause rather than withdraw and expect to see a resurgence in activity now that a MOU has been signed. The region remains a key target for the global operators and the volume of HNW individuals make it a priority for luxury hotels.

The divergence between market segments is becoming more evident as a result of higher airfare costs and inflationary pressures are weighing on price-sensitive travellers. Premium and luxury segments are likely to bounce back more quickly, supported by customers who are less sensitive to travel cost inflation and more focused on experience.

We have found that this period of disruption has created opportunity to accelerate portfolio repositioning and undertake tasks, such as technology overhauls, historically too disruptive during regular trading. We are also seeing investors place a greater premium on operational expertise, asset optimisation and active management, areas where value creation becomes increasingly important when market conditions are less predictable.

Much of the industry conversation has focused on what recent Middle East tensions might take away from travel demand. The more interesting question, from where I sit in Portugal, is where that demand goes instead.

In my recent piece on the next European hotel buy cycle, I noted that while top-line demand should remain broadly stable in the short term, it will be increasingly reallocated across destinations.

Portugal’s latest tourism statistics show the country entered this recent period of geopolitical tension from a position of sustained strength. Through April 2026, Portugal recorded a 4.6% year-over-year increase in accommodation revenue and a 1% increase in overnight stays.

Operators here continue to report compressed booking windows. The peace plan will likely create a booking catalyst for previously undecided international travelers, once again driving summer leisure demand into Mediterranean resort destinations.

A bigger question will be the conversion of bookings into spend. Compounded inflationary pressures on the consumer – for example, the affluent American traveler – will create greater price sensitivity than last summer. While bookings may hold up, on-property spend may not. The real test for hoteliers will be protecting GOP margins, as costs are likely to remain far stickier than demand dynamics.

The United States is fortunate by its geographic positioning, cultural diversity, and land wealth that it is largely immune to regional wars in Europe and Asia. This stance largely shows up through our general isolationist behavior and consumer resiliency. However, we do see consumption adjustments as people flex their budgets to accommodate increased travel costs. Generally speaking, Americans love their summer escapes and if one path becomes too expensive, they will find another escape.

At this point, it feels like the current tensions in the Middle East may actually serve to improve domestic US travel. As is widely reported, international travel is down from historical levels, but domestic travelers are also staying home in higher numbers than in the past. The difference may be that folks are trading down – flights become road trips, road trips become weekend getaways. Regardless, we are shifting international room nights to domestic room nights; or luxury room nights to upper upscale.

It is hard to say when the pendulum swings too far and the American public becomes negatively affected by international conflict, but at this point our domestic noise seems to be overwhelming the international noise, and hotels are filling up.

The hotel industry has a habit of confusing geopolitical headlines with commercial reality. In many cases, the headlines disappear long before the capital consequences do.

The real fundamentals are that business demand patterns remain volatile as the world adapts to remote and AI-enabled working. Slow growth, policy uncertainty and energy dependency have affected Europe and the UK for years.

From an owner’s perspective, the impact has been more nuanced than the headlines suggest.

So far, I have seen limited evidence of a meaningful demand shock across European leisure destinations or major gateway cities. Premium leisure demand remains resilient, while the mid-market is more exposed as rising airfares and inflation reduce consumers’ discretionary spending and hotels’ pricing power.

The bigger issue for owners is not occupancy but uncertainty. Energy, financing, insurance and construction costs have become more volatile, making development and investment decisions harder.

Periods of uncertainty tend to favour well-positioned markets and high-quality assets. Hotels with strong locations, pricing power and well-capitalised ownership are likely to emerge stronger.

In my view, this is less a demand crisis and more a repricing of risk.

Geopolitical tensions in the Middle East are reinforcing Europe’s position as a key gateway for hotel investment capital. Against a backdrop of uncertainty, investors, both existing hospitality players and new entrants, are increasingly pivoting towards European markets, attracted by a more stabilised, post-Covid landscape offering attractive risk-adjusted returns.

The sector remains fundamentally attractive. Hotel investment across Europe reached over €20bn in 2025, above the five-year average and accounting for approximately 11% of total commercial real estate activity. This reflects a sustained reallocation of capital into hotels, as investors continue to diversify portfolios and increase exposure to operational real estate.

Private capital is driving much of this momentum, actively targeting Europe as a stable growth region. Operationally, demand is increasingly skewed towards lifestyle and experience-led assets, broadly aligned with the luxury segment, where pricing power and international appeal remain strongest. In contrast, midscale and economy segments are more exposed to cost pressures and weaker consumer spending.

 However, increasing appetite is being matched by heightened scrutiny. Underwriting is more disciplined than ever, requiring clear, identifiable value drivers, whether through repositioning, operational upside or brand realignment.

 As a result, Europe’s hotel market is attracting not just more capital, but more selective, conviction-led investment.

In my view the effect on the ME and Europe is slightly different.

The Middle East could be one of the more attractive regions for holidaymakers over the medium term. Local carriers have enormous capacity, and with jet-fuel costs easing from recent highs, there is growing scope for airlines to stimulate demand through sharper pricing. Governments across the region also have a strong incentive to tourism flowing, which should support competitive holiday deals.

The caveat is on the ground. Many hotels reduced headcount during the downturn, with expatriate employees forced to leave the region altogether. As demand returns, staffing shortages could affect service levels and hotel availability—meaning cheaper flights may not always translate into a seamless or low-cost holiday experience.

Europe could benefit from a delayed wave of “revenge travel” from the Gulf. Travellers in the UAE and Saudi Arabia have spent heavily at home this year, encouraged to support domestic tourism and stay within the region. If outbound travel rebounds next year, European cities could see a meaningful lift in demand.

Whisper it quietly: 2027 may prove to be a strong year for European (city) hotels—particularly those well positioned for high-spending Gulf visitors.

We’re seeing a market that is functioning, but functioning nervously. Booking windows have become extremely short as travelers wait longer to commit amid ongoing global, political, and economic uncertainty.

The situation in the Middle East is having a ripple effect on hospitality. Higher fuel costs have pushed up airfares, airlines have reduced capacity on some routes, and international travel to the U.S. remains softer than expected. There is also growing hesitation around U.S. travel tied to immigration concerns, border perceptions, and America’s role globally. Recent industry data showed inbound U.S. tourism down roughly 14% in April.

At the same time, domestic leisure travel remains resilient, particularly in Northeast drive-to markets. Americans still want to travel, but many are staying closer to home and taking shorter, more intentional trips. Regional destinations are benefiting, with strong pacing for summer and fall.

On the investment side, capital has become far more cautious. Rising interest rates, insurance costs, construction volatility, and geopolitical uncertainty have slowed new development. Investors are increasingly focused on existing hotels, adaptive reuse projects, and distressed opportunities where there is a clearer path to cash flow and lower execution risk. That is one of the most significant shifts in hospitality real estate today.

From what we have seen across the GCC, the biggest differentiator has been the ability of destinations to maintain traveler confidence despite the geopolitical uncertainty. While the headlines created understandable concern, the reality on the ground was often very different. Markets with a strong base of repeat visitors proved particularly resilient, as loyal guests already trusted the destination and were therefore more willing to travel or return as soon as conditions stabilized.

Equally impressive has been the speed of the recovery. It is rare to see flight connectivity restored so quickly and on such a large scale while tensions are still ongoing. That rapid return of air access, combined with clear communication, helped restore confidence far faster than many expected.

Governments, tourism authorities and airlines also acted decisively, introducing measures such as destination-backed travel insurance where traditional operators could not provide coverage, alongside attractive stopover packages, complimentary hotel nights and promotional campaigns.

The key lesson is that resilience is not only about managing a crisis, but about restoring confidence quickly afterwards. In that respect, the GCC demonstrated how strong public-private collaboration and a loyal customer base can significantly shorten the recovery cycle and create a competitive advantage even during periods of uncertainty.