At this year's International Hotel Investment Forum (IHIF) in Berlin, EY's Global Hospitality Insights Top Thoughts for 2014 predicts an increase in transaction activity and development across the board as investors seek out new opportunities in the global hospitality sector over the next 12 months.
Following years of a slow recovery and constrained capital budgets, the global hospitality sector witnessed a strong appetite for growth in 2013, a trend that is set to continue and pick up pace in 2014. Global Hospitality Insights follows 13 key trends expected to have major impacts on the hotel sector in 2014 and anticipates strengthening fundamentals providing a basis for solid financial performance in 2014. Hotel companies are also finding greater access to a variety of debt and equity capital sources across both public and private platforms, making further expansion possible.
EY is anticipating more markets and industry segments will see rising average daily room (ADR) rates and occupancy next year, which in turn will strengthen fundamentals and prompt higher per key prices for hotel acquisitions, especially in popular ‘gateway’ cities, but also in secondary hotel markets.
Accelerating capital markets
With little new hotel development and few transactions in the last five years, investors globally have amassed an appetite - and capital - for new deals, leading to an increase in capital markets activity and heightened cross- border capital flows. Seeking high-quality investments in stable markets, Asian investors dominated global hotel transactions in 2013 and look set to repeat their high level of activity in 2014. Chinese and Singaporean investors combined are forecasted to account for over 60 percent of the total capital invested in hospitality outside Asia.
Among global investment opportunities, development is attracting attention with developers focused on serving current and projected customer demand in areas such as select service hotels, all inclusive-resorts and “alternative” lodging products, such as hostels.
And, while development activity is rising in many markets around the world, particularly gateway cities, developers operating in Asia and sub-Saharan Africa are among the primary beneficiaries of increased access to debt and equity capital. In sub-Saharan Africa, Ghana, Nigeria and coastal Tanzania, in addition to South Africa, all are witnessing significant hotel development. Yet, while hotel investors and operators are growing in confidence, long-standing risks – particularly in respect of widespread energy and transportation infrastructure problems – continue to temper their perspective of the region.
Changing guest demographics
The growing worldwide spend of just two groups – millennials and Chinese travelers – is expected to drive a strongly performing global hospitality sector over the next several years.
Millennials’ influence over the business travel spend - they are a third of the market and projected to be half of the market within the next five years - is driving hoteliers to modify services and amenities to appeal to their desire for value, innovation, immediacy, convenience and mobility.
The IHIF, the International Hotel Investment Conference, takes place in Berlin from March 3-6 and is owned by Questex Media. The three-day conference is the leading annual meeting place for the hospitality industry, and unites global industry professionals to help expand business worldwide.