Hotel industry predictions for 2015

05-Jan-2015 - Last updated on 26-Apr-2021 at 18:54 GMT

After a year of rising foreign investment, increased hotel transactions and continued threat from OTAs and the sharing economy, what lies ahead for the hotel industry in 2015? We asked some industry experts for their predictions.

Melvin Gold, hotel industry consultant

Whereas 2014 will be seen in many ways as the years of the hotel portfolio transaction, and there is still activity that will fall into next year, I think 2015 might be seen as the year of property investment and revival. Many of the hotels that were part of the recent transaction activity have lacked investment over the long term and desperately need to see some capital spent. I think this will now happen to some extent and the decision will be made easier for the new owners by the continued trading upsurge that I think will continue in regional UK.

While good news for the industry as a whole, and undoubtedly for its customers, it is a threat to under-invested hotels, especially independent hotels that lack brand support and are increasingly exposed to reliance on OTAs. This leaves price as a main strategic weapon which is never a good tool to be the primary weapon in the hotelier’s armoury.

The fact that capital expenditure will be spent by hotel owners does not mean that it is an easy decision. They are faced with catch-up capex which is required to get back in the game and may be seen as defensive, as well as product enhancing capex that will be seen as an offensive weapon that will enhance a property’s market position. The balance between the two is tricky but it will be good news for those hotels are gain investment and bad news for those that are left looking behind the times. For the industry as a whole we might say, about time too!

So what else? Much will be carried over from 2014. Of course OTAs, the impact of property sharing sites such as AirBnB, continued growth of branded budget hotels, fairly slow progress in new hotel development (except in London and budget hotels) but most welcome of all the continued growth in hotel revenues. Long may that continue!

Joe Stathe, information and intelligence manager, EMEA at CBRE Hotels and Jonathan Langston, senior director at CBRE Hotels.

It is going to be an exciting year for hotel investment, as we see an unprecedented number and variety of investors gearing up for a big 2015.

The positive trading performance outlook for the UK’s hotels along with its continued economic stability will ensure that the country continues to see high levels of transaction in the coming year. However it’s likely that its share of total European activity will decrease given that hotel investments in the UK accounted for an unbelievable 36 per cent of total European transaction volumes in 2014.

We will see a diffusion of private equity hotel investment as some capital heads south chasing low interest rates, cyclical upturns and the potential for yield compression. The main areas of activity will be Spain, Italy and, potentially, Greece, where a number of debt portfolios and assets are expected to come to market as banks are actively encouraged to divest the distressed properties held on their balance sheets.

Institutional investors are expected to continue moving away from their traditional investments in government bonds, whilst hotels as an asset class are becoming an increasingly attractive and integral part of a diversified real estate portfolio.

At the wealth preservation end of the market, high barriers to entry in cities like London, Paris and Rome will see investors turning towards alternative historically and culturally significant cities such as Madrid and Budapest.

We, as an industry, continue to build upon our knowledge and importantly the ability to communicate this with the wider investment community. As a result, we continue to see new players deploying capital into the hotel arena.

Jon-Paul Davies, director at independent hotel group Heritage Estates

I believe that 2015 will see a splinter effect pushing its way straight through the middle of the hospitality industry. On one side, you have the large, private equity backed hotel groups, who will be streamlining their portfolios and gravitating towards bigger properties in key localities, such as London, where high room rates and strong occupancy are a given.

On the other side of the divide are the smaller independents, such as ourselves, and mid-size operators looking to expand. There has been a significant rise in these kind of businesses in 2014 and those at the helm will continue to be forward thinking and aspirational in 2015.

Growth is more achievable than it has been for a decade as ambitious independents expand their own portfolios by picking up some of the properties dropped by the larger groups, but bank lending is still a big issue for many of us.

We await further news on potentially exciting movements in our industry like business rates reviews and also the campaign to cut VAT in hospitality, which could provide incredible opportunities to re-invest and further grow such a key industry.

The divide between both sides of the market will be greater, but both will move forward and expand in parallel.

I believe two vital revenue streams will come back to fore in the coming months. It has been a more stable time for businesses and, as such, budgets for conferences and events have grown. Confidence has also increased and we are seeing an increase in corporate bookings well ahead of time, which obviously provides a welcome financial boost.

There has also been a notable increase in wedding bookings too, again due to the fact that consumers are feeling more financially secure.

A common problem that I foresee continuing into 2015 is the ongoing skills shortage, which has been impacting on the industry in 2014.

It is an issue across the board and we’re personally experiencing a severe lack of applicants for positions in the kitchen, especially in chef de partie and sous chef roles. There is also a distinct decline in apprenticeships.

Russell Kett, chairman, HVS London

Major hotel companies will consolidate more. All the major hotel companies want to grow their businesses, both in terms of profitability and in physical terms – increasing the number of hotels in their chains. New owners / franchisees will not be attracted to join a declining brand. So hotel companies have to keep pushing the ‘expand’ button.

Organic growth (one or two at a time) can only produce so much, so companies also need to look for opportunities to make quantum leaps, typically by buying other hotel companies and driving more value through economies of scale. The global hotel companies either have to acquire to keep growing or be prepared to be someone else’s target for acquisition. So the question is, will you be dining? Or dinner?

Major hotel companies will continue to be outmanoeuvred by OTAs. The real problem is that hotel companies have failed to match – or get anywhere close – to the huge sums spent on marketing by the OTAs. So the hotel companies are not competing on a level playing field and the sector will continue to be dominated by OTAs so long as hotel companies remain so far behind.

AirBnB will attract more customers despite hoteliers’ claims about health & safety, insurance, tax avoidance and so forth. Many AirBnB customers don’t care enough about these issues so more leisure visitors will seek the bargains of AirBnB and even some business travellers, especially those on fixed travel budgets, will transfer their allegiances

Martin Rogers, director of hotels, leisure and trading at Savills