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Global Hotel Industry

Mike King

At the onset of 2012, the global hotel industry faced a year of significant uncertainty ahead. The threat of the fiscal cliff in the US, economic and political instability in Europe and the Middle East, and slowed growth in prominent Asian economies threatened performance across the globe. Throughout the year, the hotel industry continually faced pressure from external events; while some forces have stabilised, concerns of economic uncertainty persisted through the close of the year.

According to Wikipedia a hotel is defined as: 'an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms. Additional common features found in hotel rooms are a telephone, an alarm clock, a television, a safe, a mini-bar, and facilities for making tea and coffee. Larger hotels may provide additional guest facilities such as a swimming pool, fitness centre, business centre, childcare, conference facilities and social function services.'

Around the globe, today's traveler is presented with a multitude of state-of-the-art lodging amenities, including Internet access, flat-screen televisions and high-quality bathroom fixtures and case goods. To remain competitive, some hotel owners have initially been focusing on smallscale room refreshes, such as new carpeting, furniture, lighting fixtures, drapery and wall coverings. However, hoteliers with well-funded capital reserves have increasingly shifted focus to larger-scale projects, such as full-brand refreshes and redesign of lobbies, restaurants, bars and fitness facilities, in view of their positive impact on operating efficiency and the ability to roll out changes incrementally to minimise downtime.

Rapid changes in the global economy are sweeping all sectors of business and the hotel industry cannot be immune to it. Demand for hotel rooms, which slumped during the recession period, is on a rebound in line with recovery in economic scenario. Luxury hotels in the US are exhibiting a more resilient recovery compared to other segments of the industry post recession. Though the recovery rate is fast, luxury hotels segment still lags in the revenue-per-room and occupancy percentage. A host of new constructions is expected to come up in near future as hoteliers line-up a pipeline of new hotel developments for addressing rising demand for hotel rooms and services. Healthy hotel services such as wellness & healing programs, as well as customised menus are an emerging trend in the current hospitality industry.

Global hotel industry

Even in volatile environments, signs of renewed vigour emerged in 2012. Owners, investors and managers of hotel assets who sufficiently addressed their capital needs and the changing preferences of guests witnessed an improvement in operating fundamentals over the course of the year. A growing number of transactions, often at the portfolio level, heightened investor sentiment for deals, though most property trades continued to occur in major international cities. Access to financing remained constrained in some regions; however, the lodging sector continued expansion into new international markets in 2012, often financed through a platform of creative capital and growing investment from private real estate funds.

The physical condition of a hotel property is one of the most important drivers of operating performance. A deteriorating property, whether on the exterior, in common areas, rooms, ancillary facilities or back-of-house, can be a significant challenge for investors and owners. In recent years, stagnant lodging fundamentals and capital constraints, exacerbated by slow economic growth in many parts of the world, have had a negative impact on the ability and/or willingness of hotel companies and owners to address portfolio capital expenditure needs. Today, in light of recovering industry fundamentals, hotel companies and owners are once again assessing the need for capital expenditure investments.

Regional Markets

The outlook for the global hotel industry continues to be in flux; the influence of political and economic events, including the recent US presidential election, European sovereign debt crisis, ongoing conflict in the Middle East and the economic slowdown in Asia, has cast uncertainty on both developed and emerging markets worldwide. However, despite looming uncertainty, hotels worldwide have witnessed rising demand and improved lodging fundamentals in 2012; while performance will vary by region, the effects of a slow and stubborn recovery are positioned to materialise in s2013.

Top 10 Host Countries
Country Hotels Rooms Hotels % Rooms %
USA 29,555 3,518,779 50.4 45.9
China 6,036 781,284 10.3 10.2
Spain 2,080 339,701 3.5 4.4
UK 3,224 308,464 5.5 4.0
France 3,369 283,664 5.7 3.7
Germany 1,400 220,381 2.4 2.9
Canada 1,540 201,777 2.6 2.6
Japan 781 176,353 1.3 2.3
Mexico 586 123,442 1.0 1.6
Australia 962 114,401 1.6 1.5

Source: The Global Hotel Group

The US hospitality sector, most notably New York, San Francisco, Chicago and Los Angeles, continues to display signs of expansion and growth. Driven by gains in occupancy and average daily rate (ADR), it is anticipated that 2012 revenue per available room (RevPAR) averages in the US will return to 2007 levels. While US hotels overall have experienced improved operating fundamentals, upper-tier lodging segments are expected to achieve the highest RevPAR gains in 2012, as occupancy levels in these segments have already met or exceeded pre-recession levels. Many factors, including strong barriers to entry, longer hotel development periods and decreased dependence on third-party wholesalers have positioned luxury, upper-upscale and upscale segments to achieve the highest RevPAR gains in 2012.

Economic uncertainty in international markets has infiltrated the Asia-Pacific region, with major economies in the region experiencing a slowdown after several years of strong growth. However, while the level of international traffic has slowed, regional demand remains strong. With the exception of India and New Zealand, all major Asia-Pacific countries are forecast to achieve RevPAR growth in 2012, with Japan and Thailand leading the performance in the region. Increased tourism from China is anticipated to benefit the regional lodging market, with approximately 100 million Chinese leisure tourists projected to travel abroad in 2013. In Hong Kong, heighted tourism from China has led to increased room rates, as a growing Chinese middle class seeks travel for both leisure and business purposes. An increase in business travel is also anticipated for the Asia-Pacific region; as seen in Singapore, business travel remains strong, given a shortage of lodging supply in the region.

European countries continue to face economic challenges, with Greece, Spain, Portugal and Italy among some of those most affected. Currently, gains in ADR have driven RevPAR growth across Europe, as flat occupancy growth is anticipated for the region in 2013. As a result of continued economic uncertainty, lodging performance will vary by market in 2013. In the UK, lower demand and room rates are anticipated in the short-term, as the region adjusts from an influx of lodging supply created for the 2012 Summer Olympics games. Looking to Germany and France, modest increases in ADR are expected; despite positive economic performance in Germany and strong hospitality demand in France, particularly Paris, the outlook remains cautious in light of uncertainty in the greater European region. The economic struggles of Greece and Italy are anticipated to have an adverse impact on lodging demand, with declines in ADR forecast in the short-term. However, strong performance is anticipated for the Russian lodging sector; driven by upcoming mega-events, including the 2014 Winter Olympics and the 2018 FIFA World Cup, RevPAR growth and a significant increase in the supply pipeline is expected over the next few years.

Market Players

The top 20 hotel companies represent over 66% of total group hotel supply globally. This is emphasised by the top 6 groups representing approximately 51% group hotel supply globally, a situation which compounds the paradox that is global hotel supply. At one extreme, the more developed markets of North America are epitomised by "hard" branding and extreme levels of market concentration. The other extreme is illustrated by the emerging, less developed markets where brand and group affiliation is in the minority. Where it does exist, it is generally through domestic affiliations or upper-tier hotels being affiliated to "International" groups in primary "key" locations, with the majority of hotels being "independent" in the truest sense of the word. The European situation is somewhere in the middle. Although once again, it should not be seen as a homogenous mass, with each country having distinct market traits, features and patterns.

As the "independent" hoteliers have been put under increasing pressure to adapt or die, many have sought the benefits of becoming franchisees of established brands to facilitate them achieving "group" related benefits (brand perception, advertising etc) via the relatively low cost of franchise fees. This demand for "membership" from hoards of independent hoteliers has resulted in the increasing domination of Franchisors in terms of numbers and their influence on hotel supply activities.

Top 10 Global Players, 2012
Group Hotels Rooms Hotels % sub-total Rooms % sub-total
Intercontinental Hotels Group 4,665 666,162 11.4 13.1
Hilton Worldwide 3,900 633,000 9.4 12.4
Wydnham Hotel Group 7,152 617,536 17.4 12.1
Marriott International 3,513 617,000 8.6 12.1
Accor 4,430 531,000 10.8 10.4
Choice Hotels International 6,200 502,000 15.1 9.9
Starwood Hotels 1,080 316,000 2.6 6.2
Carlson Hospitality 1,105 166,656 2.7 3.3
Home Inns 1,733 150,000 4.2 2.9
Hyatt International 496 135,942 1.2 2.7

Source: The Global Hotel Group

Despite lingering concerns about the prospects for economic growth in many of the major developed economies around the globe, the increased availability of capital and building optimism in the lodging sector is leading many hotel companies to refocus on the changing preferences of business and leisure travellers. After the proliferation of boutique "lifestyle" brands during the last decade, industry pacesetters are pursuing new responses to new demand trends in the post-recession environment. From multigenerational travel to wellness to the psychographics of today's urban traveller, the ongoing segmentation of hotel demand is likely to shape the sector for years to come.

For more information on the global hotel industry, see the latest research: Global Hotel Industry

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