Grim outlook for the hospitality industry. Only 2% execs see a sustained recovery

Only 2% of executives in the European hospitality industry see a sustained recovery in the year ahead, according to a DLA Piper survey.
55% of the respondents expect a full recovery in room rates in 2012 to pre-financial levels.

The majority of respondents said the hospitality sector would offer increased opportunities for joint ventures in 2010.

The DLA Piper 2010 European Hospitality Outlook Report – launched at the International Hotel Investment Forum earlier this week – revealed different views on the new-build activity with 36% of the respondents anticipating a slight increase in the delivery of new projects, against 32% foreseeing a slight decrease. Some 80 per cent of respondents expected a continuation in the trend towards conversion of independent hotels and small chains into parts of larger chains and 66 per cent expected large chains to increase their market share in 2010 (although 30 per cent thought otherwise).

“Large hotel chains will continue to increase their market share by swallowing new hotels. They have the advantage of operating efficiency and higher marketing budget”, said Alin Buftea, head of Real Estate and Construction at DLA Piper’s Bucharest office.

“Even though occupancy rates have reached a more stable path, the industry fears room rates will remain low over the next few years and that the absorption of already operational hotels by large chains will not mitigate the low construction activity”, said Karen Friebe, Partner and Head of Hospitality & Leisure Sector, DLA Piper.

The development of the hospitality industry would be fairly limited, but certain international hotel chains may channel their investments to China and India over the next three years – 28% of the respondents identified China as representing the best opportunities for significant growth for their businesses, while 24% pointed to India.

A part of large hotel companies have reduced their debt and now have the necessary resources to invest in BRIC countries (Brazil, Russia, India and China).

Borrowing conditions improved and investors are now shifting their focus towards joint-venture opportunities in a bid to minimize risks they are exposed to and gain access to cash flow.

Around 75% of the respondents agreed that joint ventures offered increased opportunities.

417 hospitality executives participated in the survey, with 155 working in the UK hospitality industry.

DLA Piper is an international legal practice with lawyers across Asia, Europe, the Middle East and the
United States.

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