With the hotel industry showing signs of growth - and investors once again expressing interest in hotels as an asset class - there are set to be many opportunities in the sector. At a recent CB Richard Ellis round table event with some of the top names in the hospitality investment industry, the participants agreed that the rate of transactional activity in the market is set to increase by the end of the year. David Hargrave, partner at Ernst & Young, commented: "With the top line improving and most groups having worked on their cost structures, there's a strong 18 months of improving profitability in the making."
He added that there is "certainly the appetite there from buyers" who want to enter the hotel sector and take advantage of the more positive outlook in the industry. One area in particular that is important for the growth of the sector is the conference market. The recession impacted businesses' use of meeting facilities, with the UK Events Market Trends Survey 2011 published by Eventia revealing that the business events sector declined by 13 per cent between 2009 and 2010. However, managers at conference venues were upbeat about prospects during 2011, with 42 per cent of those questioned expecting business to have picked up by the end of the year.
Price and value for money were cited as the most important factors for those organising corporate events, while location, access and the quality of the facilities were also said to be among the top considerations. Hotels with their own conference rooms may therefore be able to provide a service that offers good value as part of a larger package.
Meanwhile, the INCON survey of the global association conference market 2011 revealed that many suppliers expect to see rates for venue hire and accommodation increase by the end of this year. Revenue from providing housing for delegates is set to deliver healthy growth of up to 45 per cent over the course of 2011, the research stated.
The promise of good revenue streams could therefore attract investors, with hotels looking to expand their services to include the conference sector potentially making ideal targets. Being able to put money into an already successful business that intends to extend its offering may be a strategy of interest, particularly if the expansion is into a growing sector like conferences and meetings.
Miles Quest, spokesman for the British Hospitality Association, explained that it is a lucrative source of income among hotels. "The conference market is worth about £19 billion, according to the UK Events Market Trends Survey - with hotels having 60 per cent - so it's big business," he stated. Mr Quest went on to point out that there are numerous advantages to holding a conference at a hotel, rather than a venue without accommodation, with the self-contained nature of such events usually making them easier to manage.
He added that much of the expansion activity to cater for this market is currently taking place in London, which could mean it is a good location for investors to focus on. Research published recently by PricewaterhouseCoopers (PwC) revealed that the capital's hotel sector is outperforming the rest of the UK, with average daily rate (ADR) growth of 8.9 per cent anticipated for 2011, while occupancy rates across the city have also shown improvement this year, compared to 2010.
And it seems that a similar pattern is emerging in the meetings sector, the Advito 2012 Industry Forecast indicated. According to the research, hotel rates for conferences have been gradually improving throughout this year, although they are still not back to the peak experienced in 2008. Advito cited two notable exceptions to this trend - London and New York - where "supply is beginning to tighten and rates have accelerated far more quickly in 2011, often by double-digit percentages". This appears to bode well for any hotel expansion into the conference sector and the possibility of significant returns could therefore help attract investors to such opportunities.
- Monday 03 October 2011