Hotel Industry Enjoys Resurgence Post Crisis

Recent research has suggested that the European hotel industry is showing steady signs of growth in the wake of the global economic crisis...

Recent research has suggested that the European hotel industry is showing steady signs of growth in the wake of the global economic crisis. Although not yet back to pre-recessionary levels, there remains plenty of scope and opportunity for investors to increase their exposure to this growing market.

Overall hotel spending in Europe grew by seven per cent in 2010, with a further four percent growth in the first quarter of this year, research by American Express Business Insights found.

This has been driven in particular by tourists from outside of Europe returning to the region, increased spending in luxury hotels and a rebound in business travel.

Interestingly, the UK was found to be leading the way in terms of spending growth in Europe, with a ten per cent increase on the previous year.

Sujata Bhatia, vice-president for the firm, explained that a rebound is taking place in the hotel sector across Europe.

"This strong growth is great news in an environment where consumer confidence remains low and economic growth fragile," said Bhatia. "This is particularly true in the UK, where international visitors are spending again, making a significant contribution to the UK's economic recovery.

"It will be interesting to see how heightened global interest in the UK, with the Royal wedding, Queen's Diamond Jubilee and the 2012 Olympics, impacts the sector."

Travelodge Reports Strong Growth

It is a view which is shared by others in the industry. Earlier this year, Travelodge reported that it is on track to operate 1,100 hotels by 2025 after delivering a strong trading performance in 2010.

The budget hotel chain saw total sales for the year rise 13 per cent, with like for like sales up six per cent. After opening 70 new properties and exchanging a record 96 hotels last year, Travelodge saw occupancy rise by three per cent on average across its portfolio.

Furthermore, the group sold 7.2 million rooms, a 13 per cent increase on 2009. Its performance has put the firm in a good position to continue the rapid expansion of its portfolio and achieve its aim to be the largest budget hotel operator in the capital by the London 2012 Olympic Games.

Shakila Ahmed, spokesperson for Travelodge, confirmed: "The recession has really opened the door for the budget hotel sector, and also people have had to become really savvy with the choices they've made in the last few years. The majority of consumers now want value for money."

She added that on top of an increase in the number of leisure customers, business books have also helped to keep the market buoyant both during and after the recession.

"One of the biggest cutbacks companies could make was just to review their accommodation needs for business trips," Ms Ahmed said. "It was still necessary for people to go, but they could look at where they were staying. Rather than spending hundreds of pounds for a hotel room for a night, they started shifting towards budget accommodation."

Carlson Plans Expansion of Radisson Brand

Rather than just staying afloat, a number of firms cite expansion as their main focus for the future. Carlson, which owns Radisson, one of the world's leading hotel brands, recently announced its Hotel Ambition 2015 plans.

The firm is aiming to expand its portfolio by at least 50 per cent by 2015 to more than 1,500 hotels in operation around the world.

With Radisson, the organisation is investing a serious amount of cash focusing on establishing flagship hotels in key cities and upgrading their existing portfolio. With 420 hotels in operation globally and 107 hotels in the pipeline, the brand is poised for significant growth around the world.

"We have continued with our growth strategy, and despite the continuation of difficult trading, 2010 was another record year of new openings. 7,200 new rooms were added to operations, and we continue to have one of the largest pipelines in the industry," the firm explained at the release of its year-end results back in February.

"Going forward we will continue adding new hotels to our portfolio and invest in further enhancing the quality of the existing hotels."

Investment Opportunities

As an investment, hotels rooms and hotel companies are becoming increasingly popular. The managed and relaxed nature of the investment allows buyers to have a hands-off approach to their purchase. The hotel company will manage and market the room on behalf of the investor, because it is also in their interest to increase revenue.

Then there is the advantage that the performance of hotels is not necessarily tied to the wider property market, as with commercial or residential assets. By investing in a worthy development that is likely to attract domestic and international visitors, the chances of achieving a high yield increase.

Indeed, the success of hotels can usually be determined by wider economic conditions. Generally, as the economic climate improves, so the hotel industry becomes ever more attractive as an investment.

- Wednesday 25 May 2011

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