A survey of 417 European hotel executives by international law firm DLA Piper has revealed weak industry confidence and dealt a blow to hopes of recovery this year. Only two per cent of respondents expect a sustained upturn this year, despite 37 per cent predicting one year ago that 2010 would bring solid growth. These worse-than-expected results are compounded by fears from over half of hoteliers (55 per cent) that room rates will not return to pre-financial crisis levels until after 2012.
The DLA Piper 2010 European Hospitality Outlook Report – launched on Monday 8 March at the International Hotel Investment Forum – also shows mixed prospects for new build activity, which stalled dramatically in the recession – 36 per cent of respondents expect a rise in new developments, but 32 per cent expect a fall. Large chains are predicted by 80 per cent to continue their focus on small chain conversion and about two thirds (66 per cent) expect large chains to increase their market share in 2010.
“The largest chains will continue to gain share through greater opportunities to convert smaller chains and the advantages that their operational efficiencies and marketing budgets give them,” said Karen Friebe, global co-chair of DLA Piper’s Hospitality and Leisure Practice.
“But, while there are signs that occupancy levels have stabilised, there is growing concern throughout the industry that room rates will remain low for years to come and conversions are unlikely to compensate for reduced new build activity.”
Growth is expected to be limited in 2010, but over the next three years significant numbers of hotel chains may look to China and India to expand – 28 per cent of respondents see China as one of the best markets in which to grow their business and 24 per cent point to India.
Karen Friebe commented: “Some chains have focused on cutting their debt and are now reasonably well-positioned to grow through new market opportunities in BRIC countries – particularly China and India. Lending conditions have eased a little and we are seeing greater use of joint ventures to spread risk and access capital.”
This is recognised in DLA Piper’s report with three quarters of hotel executives currently seeing increased opportunities for these partnerships.
Kirk Kinsell, IHG's president for Europe, Middle East and Africa, said: "There's no denying that last year was one of the toughest on record and the next 12 months will continue to be difficult but we do have reason to be optimistic.
“Occupancy has stabilised and business travel has started to creep back, however room rate will remain under pressure until we see business travellers return in greater numbers. Our overall pipeline has been holding up well across Europe and we're still signing on average a new hotel a day. The past year has also been tough for our owners with banks less willing to lend, but good relationships with our owners have meant that we've worked together to tackle the downturn by managing costs and driving guests to our hotels.
This year we will continue to focus on the quality of our hotels. We are over half way through the £600 million relaunch of our Holiday Inn hotels, which we're on track to complete by the end of this year. This means that guests can expect a consistently good experience at every one of our 3,200 Holiday Inn hotels around the world."
Many executives at well-capitalised hotel chains have been encouraged by the state of the market – of the 27 per cent who say their outlook for the next 12 months is ‘bullish’, the most popular reason is the investment opportunities created by the financial crisis, with the economy/budget sector named as the most attractive investment prospect.
