EY - Global hospitality insights 2014

Global hospitality insights 2014

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The global hospitality sector entered 2013 with a strong appetite for growth. Building on momentum gained in the prior year, renewed investor confidence and pent-up demand for trades propelled growth within the global lodging sector, fueling an increase in transaction activity and worldwide improvements in hotel operations.

Opportunities

After years of facing constrained capital budgets, hotel owners refocused investment in their portfolios to maximize growth in occupancy and rate. Across the globe, significant improvements in lodging fundamentals also captured investor attention, signaling renewed assurance in hotel investments. Furthermore, increased transaction activity – including the re-emergence of IPOs – was observed throughout the year for both single-asset and portfolio trades, primarily driven by active global capital markets and heightened investor sentiment for deals.

Challenges

Despite vast improvements, the industry continued to face certain key challenges over the course of 2013 that threatened hospitality performance across the globe: governmental interruptions and rising debt levels in the US, constrained capital markets in Europe, the threat of violent political events in the Middle East and Africa, and slowed growth momentum in select Asian economies.

Even with these external challenges, an undeniable vigor emerged within the lodging industry during 2013.

Our top thoughts on this year include:

Activity and acceleration in the capital markets. The tailwinds of job growth and rising corporate earnings are becoming stronger than the headwinds of overall unemployment, rising interest rates, and government regulation and fiscal policy. Barring any large, sudden global economic events, the momentum gained in 2013 should lead to improved real estate fundamentals.

Millennial travel preferences. Self-assured, optimistic, globally connected and curious — the Millennials are poised to take the hospitality market by storm. In order to capture this vital segment, today’s hotel executives need to look beyond their industry, study and learn from innovators, and understand how to meet evolving Millennial expectations in lodging and travel.

The rise of select services. As the global economy and tourism recovery gains momentum, many travelers continue to show a recession-era preference for select-service hotels that offer a compelling value proposition by providing many full-service amenities at a lower price point.

Global tax considerations. Around the globe, several key tax trends are anticipated to remain top of mind for hospitality executives in the coming year, including the continued separation of “Opco–Propco” entity structures, increased cross-border capital flows, global tax compliance and transfer pricing, and a heightened focus on indirect taxes.

China travel trends. Data from the National Bureau of Statistics of China indicated that outbound travel increased at a compound annual growth rate of 18.5% between 2000 and 2010, from approximately 10.5 million to 57.4 million travelers, respectively1.

Renewed interest in all-inclusive offerings. While all-inclusive resorts traditionally offered a cost-centric product for budget-conscious vacationers, today’s offerings encompass more upscale products. The industry is targeting those looking for a refined, experiential vacation that better reflects their perceived positioning and self-worth.

Effectively implementing your tourism strategy. To capture the demand of new and repeat travelers, destinations must effectively implement their tourism strategy, as well as support the necessary public infrastructure to ensure the visitation of future travelers.

Investment in sub-Saharan Africa. In 2013, the development pipeline in sub-Saharan Africa increased 23% over the previous year, with about 80 hotels in various stages of development2.

Alternative lodging products. Alternative lodging accommodations no longer cater solely to the cash-strapped traveler. Today, they have gained industry recognition as an alternative preferred by guests seeking greater flexibility, convenience and social interaction than is commonly found in a traditional hotel setting.

IFRS considerations. While a significant portion of key global capital markets jurisdictions have adopted IFRS or endorsed all or a portion of guidelines published by the International Accounting Standards Board (IASB), gaps remain in select markets.

Outbound investment from Asia. Over the past year, Asian investors have invested most heavily in international gateway cities with a heavy population of Asian nationals and in large mixed-use projects, leveraging their development experience and significant customer base in their home countries.

Strength and saturation in the global gaming market. Amid the early stages of a global economic recovery, many governments have been turning to gaming as a method of increasing tax revenue and tourism spending that historically has been captured by alternative destination points.

Hotel valuation on the upswing. Heightened transparency across the world’s real estate markets has provided investors with greater insight into market dynamics and performance, allowing real estate investors to broaden their global reach.

1 The 21st Century Game-Changer Up Close — China Outbound Tourism, HVS, April 2011.

2 “Hotel chain development pipelines in Africa 2013,” W Hospitality Group website, www.w-hospitalitygroup.com, accessed 10 October 2013.

EY - Howard Roth

Howard Roth
EY Global Real Estate, Hospitality and Construction Leader

EY - Michael Fishbin

Michael Fishbin
EY Global Hospitality & Leisure Leader