Significant increase in transactions in the hospitality sector expected for year ahead

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  • Cautious but growing optimism among investors and hotel brands
  • New project announcements at highest level in 18 months

New York and London, 1 March, 2013 -- An overwhelming majority (83%) of hotel investors are optimistic about the mid-term future of the hospitality industry. That's according to a survey of top hotel sector investors and operators polled at an EY hospitality sector workshop held in London recently. Approximately 60% of respondents to the survey believed that hotel transaction activity in the Eurozone would increase "significantly" this year with the overwhelming emphasis being on gateway cities such as London, Frankfurt, Paris and Brussels.

And, according to EY's recent report Global Hospitality Insights: Top thoughts for 2013 (GHI), while access to financing is still difficult in many markets around the world, new project announcements have risen to their highest level in 18 months. This reflects the cautious but growing optimism among investors and hotel brands in the trajectory of the global economy.

Delving further into the financial aspects of the industry, GHI says the hospitality industry will be shaped by an emphasis on controlling costs at all levels of the business as well as optimizing capital. This could mean continued scrutiny of maintenance spending and the re-evaluation of capital improvement projects, as owners decide where best to invest limited resources.

Hotel companies are also looking at ways to restructure and reposition for tax purposes, with some again contemplating IPOs for real estate investment trusts (REIT) formation as a way to both reduce overall tax and also unlock value in their real estate. On the investment front, in spite of increased regulatory hurdles and illiquidity in the capital markets, global private equity and sovereign wealth funds will find more opportunities in the sector.

Among the other key trends discussed in GHI were:

Cities: Increased investments in infrastructure by city governments — especially in rapid transit facilitating the movement of travelers from airports to downtown locations — appears to be paying off as a new class of trendy travelers flock to statement-making urban hotels.

Development: A rise in both emerging markets as well as prime downtown urban locations and across segments — particularly at the upper end of the market and among select service brands appealing to the value-conscious traveler.

Markets: Africa could be the next major thrust for global hotel brands as more investors target sub-Saharan nations rich in natural resources such as Nigeria, Gabon and South Africa, for expansion. Globally, most markets experienced steady growth in 2012, with the notable exception of Europe, where economic challenges continue to be greatest.

Commenting on the report, Michael Fishbin, EY's Global Hospitality Leader says: "Hospitality companies continue to evaluate the capital agenda and this is causing them to focus on the very basics of their businesses – maintaining stability, creating operational efficiencies and reinforcing cost reduction strategies. We are beginning to see signs of renewed vigor in the sector as a whole and companies who have successfully addressed their capital needs are in a stronger position to take advantage of opportunities during these early stages of recovery."

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