Hoteliers look to the long term for market recovery

19 March 2009 by
Hoteliers look to the long term for market recovery

Gemma Sharkey reports from a sombre International Hotel Investment Forum (IHIF) in Berlin, where hoteliers were hard-pressed to find a silver lining

What a difference a year makes. In the 12 months since last year's IHIF the hotel industry has crunched unwillingly through a series of gear shifts as the economy has moved from credit crisis to tentative whisperings of the "R" word, shifting through to the Lehman Brothers collapse and eventually hitting full-blown recession. There is also talk of the ultimate in ultimate worst-case scenarios: a depression.

The mood was well and truly cemented in the opening presentation of the conference, when Roger Bootle, managing director of consultancy Capital Economics - who last year stopped short of predicting recession - said the economic crisis was the worst since the Second World War.

Different climate

This was compounded by Philip Davidson, senior partner at consultancy firm KPMG, who described the climate as being "already different from any of the previous recessions that anyone in the room remembers - or has read about". Simon Neilson-Clark, partner at legal firm DLA Piper, then unveiled a survey in which four in 10 hotel executives predicted that five big hotel chains would go under by the end of 2009.

Senior industry figures were also unanimously gloomy about the credit situation, with one joking that the only banks left would be those for "sperm and blood".

Richard Balfour Lynn, chief executive of Malmaison owner Marylebone Warwick Balfour, confirmed that there was "no debt out there" while Chad Pike, global co-head of real estate at Hilton owner Blackstone, said the lack of credit and the resultant gap between hotel buyers and sellers meant there would be "very little consolidation in 2009". Derek Gammage, managing director of property agent CBRE Hotels, went further, and accused the equity lenders of being arrogant.

Despite warnings not to repeat the mistakes of the last recession, when room rates took years to recover from savage cuts, the chief executives admitted to discounting and cutting staff training.

Leaders from Marriott, Accor, IHG and Starwood all conceded that they had discounted across the board, with Sorenson saying: "None of us has the power to say we can ignore the pricing of our competitors." Cosslett admitted that IHG had been forced to slash rates "to create activity". Chris Nassetta, president and chief executive of Hilton, confessed to cutting staff training.

The economic rain clouds were, however, tinged with silver, in the form of hotel sales and brand launches. It was confirmed during the conference that the Le Meridien Beach Plaza hotel in Monaco, owned by Starman Hotels, had been sold by Christie & Co for €25m (£23m). This was followed by news that the Le Meridien hotel in Piccadilly, London, had also agreed a sale.

Other positive news saw Hilton launching its new boutique brand, Denizen, while the newly created Mour Hotel group revealed plans for up to 12 new sites in the next six months.

Pike also referred to the pressure being eased thanks to low interest rates, but he added that the "dance" between buyers and sellers would continue because of this. Nassetta expressed hope that the "trillions of dollars" infused into the economy by governments would not go without a resulting impact.

Most experts in Berlin were reluctant to give an exact recovery time period, but the consensus was that it is not going to be quick. It will be a long, deep and painful recession, and even when we do see signs of recovery the landscape of the hotel market will never regain its pre-recession form.

Robert Koger, president of property agent Molinaro Koger, said he was looking for stabilisation in the second quarter of the year in order for deals to start happening. James Chappell, managing director of STR Global, said revpar would not increase until the third quarter of 2010. On the whole, predictions for recovery ranged from mid-2010 to 2011-12.


Nevertheless, hoteliers were extremely optimistic for the long term. Looking ahead to 2020, Frits van Paasschen, chief executive of Starwood Hotels & Resorts, said he was confident about growth in the market, claiming that opportunities would be huge when the cycle started to swing back up thanks to the massive growth in prosperity in developing countries. Nassetta, too, claimed he was "extremely optimistic for the long term", while Sorenson predicted that within 10 years one of the large groups would have one million rooms in its system. Roll on 2020.

Want to read more? Go

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