Global troubles may mean tough 2018 for European hotels
 
Global troubles may mean tough 2018 for European hotels
04 OCTOBER 2017 9:00 AM

Despite the rosy outlook of many hoteliers, the post-recession European hotel market is still experiencing remnants of economic and government fallout.

VALENCIA, Spain—Europe is in the midst of a hotel-industry golden age, but it’s not all smooth going, and the aftereffects of the global recession are the biggest bumps in the road.

Government officials undertook economic efforts to avoid some of the traps related to the recession, but they’ll still see challenges evolve and disconnects develop in financing, said speakers at the recent Choice Hotels Europe conference here.

2018 could be a tougher year, panelists said during the biennial conference, attended by approximately 300 European franchisees and owners, as well as Choice Hotels executives from both the firm’s European and United States’ headquarters.

“The effect of the global recession has not fully gone away. There is excess liquidity in the market, which makes it difficult to get yield, and this has resulted in a disconnect between low interest rates and high asset prices,” said Thierry Malleret, managing partner at analyst Monthly Barometer.

That complex piece of economics lies at the heart of what hoteliers and owners need to negotiate, panelists said, but overall the market in Europe is sunny, with few clouds.

Robin Rossmann, managing director of STR, parent company of Hotel News Now, said the level of brand penetration in Europe remains very low. Another benefit to brands is that few new hotels are being opened.

“Supply (growth) is not more than 1% a year … and there are hotels that have not seen investment and provide opportunities for repositioning,” Rossmann said.

Pat Pacious, president and CEO of Choice, succinctly summed up the European landscape: “Europe now is as the U.S. was in the late ’80s.”

Occupancy in Europe is 72% (year-to-date August)—10% higher than the pre-recession peak, Rossmann said.

“And we’re not slowing down. Latest year-to-date numbers show 7% (revenue per available room). What other industries are growing at that rate?” he said.

Pacious said demographic evidence and statistics add to that optimism.

“People are living longer. They are healthier, and they have more discretionary income, which they are choosing to spend on travel, not on durable goods,” he said. To capitalize on this demand, he added, Choice is targeting Europe’s dominant markets, while also keeping an eye on other destinations.

Always caution
Rossmann did strike a cautionary note, however.

“2018 will be a tough year, I believe,” Rossmann said, adding that labor controls could add more worry lines to the brows of hoteliers.

“We like Germany and its mid-cap business environment … not just its top five markets, but its top 20. In the United Kingdom and France, we see opportunities for (soft-brand collection) Ascend,” Pacious said.

Brexit remains a challenge, joined now by succession demands in Catalonia, which were taking place as the convention got under way. But noise in some European markets might mean advantages in others.

Rossmann pointed to Dublin, Frankfurt and Luxembourg as three markets that might benefit from businesses seeking a firmer footing in Europe. All of these markets have what he termed “good demand drivers.”

The rest of Europe will benefit going forward from the increase in leisure demand. Sunnier locales also will remain popular with travelers from chillier northern Europe, Rossmann said.

Another favorable trend is the influx of Chinese travelers.

“The Chinese want to shop in expensive boutiques buy stay in midscale properties, and that is (Choice’s) sweet spot,” Pacious said.

“You have to be clever in how you attract Chinese tourists,” Rossmann said. Currently Chinese tourists represented only 2% of inbound travelers to the continent, he said.

Rossmann said that U.K. hotels have seen boosts from Brexit chatter.

“Initial estimates (post-Brexit) were pretty dire … but if your currency devalues 20% to 25%, it makes your destination incredibly cheaper to go to.”

Turkey also is responding to pessimism with a similar devaluation.

Tech boosters
Another advantage that the hotel industry has over others: It “will not be eaten by technology, as essentially it is a people business,” Malleret said.

Rossmann underlined that point with a warning for those chasing rankings for the sake of them.

“It is not just a question of getting the best reviews, as you might achieve that merely by underselling your rooms, and not one wants that,” he said.

It is not a question either of rolling back technology, which panelists said remains vital. Instead, hoteliers need to be flexible and able to spot trends.

“We’re seeing increases in use and bookings to our call centers via our click-to-chat initiative. We’re also developing voice-search, which will be another game-changer,” Pacious said.

Key takeaways
Asked to sum up the current environment and their hopes and concerns, Malleret spoke of political steadfastness, while Rossmann underlined the requirement to be flexible, and Pacious championed sober thinking.

“Europe is the continent least affected by geopolitics, despite some noise, and it will be a sweet point for years and years to come,” Malleret said.

Opportunities will come to those who are most prepared and have the quickest synapses, panelists agreed.

“The hotel industry is not one to adapt well or quickly,” Rossmann said. “We’ve seen overbooking since Mary and Joseph could not find a hotel room. There are so many changes in technology and consumer behavior, everyone needs to proactively adapt.”

Not surprisingly, Rossmann added data as a component the industry needs more of.

“You cannot improve what you cannot measure,” he said.

Pacious, the CEO of a firm with 11 brands, said he would not write off adding more brands, firms or portfolios, but merger-and-acquisition activity needs to make sense.

“We’re looking in Spain and Italy, but we’ve always been a disciplined buyer. Asset prices are high, but debt is cheap,” he said.

Choice’s portfolio had increased as the panel was getting started, according to moderator Mark Pearce, SVP, international division, at Choice Hotels International.

“We just signed at lunchtime four franchise deals in Yorkshire (U.K.), with a total of approximately 500 rooms, three Clarion hotels and one Ascend, which will add approximately 30% to our U.K. room total,” he said.

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