Global Hospitality Insights

Top Thoughts for 2013

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In 2013, the management and optimization of capital will remain top of mind for hospitality industry players.

While the recovery from the global recession has varied by region, traction gained in 2012 has positioned the hospitality industry for near-term sustainable growth.

Owners will continue to assess deferred maintenance spending at the property level, while changes in governmental regulations will present hotel companies with new restructuring and tax considerations.

Across the globe, an increase in tourism is anticipated over the next 12 months, resulting from the renewed efforts of destination marketing organizations, the increased use of technology and a growing interest in travel among the middle class of various emerging economies.

The role of infrastructure will also gain prominence in 2013, as major cities continue to invest public funds to improve the movement of travelers from the airport to tourist attractions.

Furthermore, investor demand in the capital markets will continue to rise; however, signs of a full recovery, including the IPOs of hotel companies and significant new loan origination, may require additional time to materialize, as markets slowly move towards a new equilibrium.

We are excited to present this year’s edition of Global Hospitality Insights: top thoughts for 2013. The report reveals key issues and trends we believe will be the primary areas of focus in the global hospitality industry in the upcoming year.

Our top thoughts include:

Where we are now, and where we are going. Even in volatile environments, signs of growth and strengthening lodging fundamentals are present, positioning the global lodging sector for imminent and sustainable recovery going forward.

Understanding your capital needs. Companies that focus on optimizing capital will be best positioned when economic confidence improves.

Capital markets: mixed signs. In the wake of continued economic and political uncertainty, real estate capital markets have displayed mixed results, and there are signs of pent-up investor demand.

Tax and restructuring considerations. Around the globe, major hotel brands continue to move to an “asset-light” model. This ongoing trend involves a number of key tax and structuring initiatives for brand owners.

Addressing deferred capex. Investors evaluating acquisitions, or even refinancing opportunities, should analyze historical capital expenditures, as well as future needs as an integral part of their due diligence.

Private real estate funds: gaining global traction. Although economic uncertainty continues to have a negative impact on investor confidence, fund-raising remains active in the real estate investment market, including the hospitality sector.

Development in a new global economy. Hotel development statistics suggest that the US economy has entered a new real estate cycle. Investors are slowly regaining their lost confidence in the economy’s ability to recover, in light of improving job market trends; however, despite rising eagerness, investor action to capitalize on new hotel investment opportunities remains subject to credit availability.

Infrastructure as a catalyst for lodging development. The connection between reliable infrastructure, the traveler’s experience, and the potential economic impact to a city/region is clear. When executed properly, investment in infrastructure has proven beneficial to the current and future interests of both the visitor and the area economy.

Hybrid contracts: weighing risks vs. rewards. In today’s business environment, traditional operating agreements do not always meet the changing needs of the owning and operating parties. The hybrid contract has emerged in response, offering elements of leasing, ownership, franchising and management contracts to properties globally to enhance the flexibility of contracts.

Destination marketing strategies. Amid fierce global competition, destination marketing organizations (DMO) are looking at innovative ways to put their destinations back on the map after the recent years of constrained budgets and fluctuations in visitation levels.

International brand, local market. Competition in the international hotel market is strong, as hotel companies strive to penetrate new markets and expand their portfolios around the globe.

Shifting segments: responding to changing preferences. 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 travelers.

Valuation: recovery amid uncertainty. Because of global uncertainty, hotel valuations are expected to remain a challenge in the near- to mid-term.

Emerging markets: spotlight on Africa. As investors stream to Sub-Saharan Africa in search of natural resources, the region has become the second fastest-growing economic region in the world, reports the World Bank.

New ways of reaching guests. On the spectrum of “high tech” versus “high touch” technology and service philosophies across the lodging sector, common practices for the application of emerging technologies have evolved, with a focus on sales and marketing, distribution and guest services via social media, mobile applications and in-room technology.

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