Phil Benson reviews current hotel trends and 2012 business outlook data … what does 2012 have in store for you?
In 2011, the hotel sector started the year with a new confidence following signs of recovery in 2010. However, a lack of debt finance and the continuing economic uncertainty, especially in the Eurozone, seems to have stifled the industry and hampered the business outlook for 2012 so many hoteliers were hoping would be positive.
Christie & Co’s Business Outlook 2012 reveals that average prices declined by 5.1 per cent in 2011, compared to a rise of 0.9 per cent for the previous year. This figure was reached by using average price information from hotel transactions, which the company had brokered.
2011: A Mixed Year
The company saw 2011 as a tale of four quarters, with the beginning of the year seeing operators and investors go into it full of optimism and the trading environment remaining largely kind. The second quarter witnessed increased deal activity, thanks in part to factors like von Essen Hotels coming to market.
However, by quarter three, the reality of a slower paced economic recovery was beginning to have an impact leaving the sector facing uncertainty and confusion, so by the fourth quarter, transactional activity spluttered as a ‘wait and see’ approach was adopted by operators and investors alike.
Jeremy Hill, Director and Head of Hotels with Christie & Co believed that as the year progressed, cash became king. New hotel pipelines became smaller and developments such as investor interest in the sale of the von Essen Hotels portfolio and the sales of Mint Hotels and London’s W Hotel, disrupted an already fragile sector, which depressed values on existing assets as a result.
Buyers Will Dominate 2012
Mr Hill believes that cash buyers will dominate in 2012 once more, taking advantage of an opportunity to ‘fill their boots’, should distress force more property to the market. Investment from emerging nations, such as Russia, India and China is expected, but this is likely to be very London-focussed investment.
Other predictions from Christie & Co in 2012 include, banks seeking to rationalise their investments and possible consolidation in the market. The transactional markets to remain cautious, as prices are driven by those able to buy now and pay later. Mid market and budget hotels are expected to up-scale customer bases and regions will continue to experience a variable trading performance, which might be boosted by Olympic ‘stay away’ customers.
2012: Market to Re-Balance
HVS London, a global hotel consultant has predicted that overall, 2012 will be a year that is likely to see a return to sound fundamentals, which are to the benefit of stable markets like London.
The increase in travel from emerging markets (BRIC nations) will also offer the opportunity for hotels to improve their performance. The Hotel Valuation Index published by HVS London estimates that established markets that are already operating at high occupancies, could see a further increase in rates combined with a varied business mix to continue to push value.
Provincial and secondary markets could see modest growth as the corporate and meeting business needs further time to make a full recovery.
The slow growth and increased lending levels should help the hotel sector to recover fully over the next five years, but it will still be hard to secure debt financing in the short to medium term to spark a significant revival.
By Phil Benson