NEW YORK, February 24, 2009 - Global hotel markets are expected to
continue to feel pressure from contracting economies and reduced leisure
and business travel across much of the world in 2009. However, despite
declines across most major regions of the world in 2008, operating performance
in the global hotel industry remained profitable as hoteliers focused on
controlling costs and preserving the bottom line, according to a report
released today by Ernst & Young LLP.
"There is little doubt that most markets in the current economic climate
are challenging at best and growth will be hard to come by for most operators,"
said Michael Fishbin, National Director of Hospitality Services, Ernst
& Young LLP. "As a result, this year we will see hotel operators continue
to focus more of their energies on cost reduction, improving operating
efficiencies in their hotels, reaching out to guests via enhanced Internet
communication and strengthening their brands through an emphasis on green
principles in activities related to both development and operations," he
The US 2009 lodging report carries an overview of global, including
US, hotel sectors as well as in-depth analysis of the main lodging segments
and market reports for 17 major US cities including New York, Los Angeles,
Chicago, Miami, Dallas and San Francisco.
The report also features ten main thoughts on trends and issues to watch
in the hotel sector in 2009. These are:
1. Capital. Despite low mortgage delinquency
rates, hotel values dropped in 2008 and will continue to drop in 2009 as
the economic slowdown takes hold. Meanwhile, cash-rich buyers are waiting
to make deals once acquisition pricing is attractive. A recent Ernst &
Young LLP survey of US real estate investors revealed that 60% intended
to take advantage of fire-sale prices and buy commercial real estate. With
$400 billion already raised by private equity firms for distressed debt
investment and a first wave of bankruptcy judgments expected this year,
the transaction floodgates should open before the year is out.
For a copy of the full 124-page report, go to www.ey.com/realestate.
2. Costs. If the recession has a silver lining it
is that companies are concentrating on improving efficiencies and reducing
costs. Hotel companies moving quickly to pare overhead at the corporate
and property levels will not only save money but will position their enterprises
to be more dominant players for the next cycle.
3. Business Development. A recent Google(TM) survey
suggests that a third of travelers have made accommodation decisions based
on reviews found online on sites such as TripAdvisor, Yapta, Travel Muse
and Concierge. This is just one good reason hotel operators should step
up their brand presence on the internet in 2009.
4. Development. In recent years, hotels have received
growing attention as an instrument of urban redevelopment. We don't expect
this to change, but we do expect the mix of uses around these hotels to
change. Look for hotel-condo and retail mixed-use developments to make
way for hotel developments mixed with office and rental apartments - a
mix likely to better suit changing market fundamentals. In resort properties,
condo hotel units won't be eliminated completely, but are likely to be
scaled back in new developments.
5. Debt. With $19 billion of loans in commercial
mortgage-backed securities pools set to mature this year and very few new
loans available, hotel borrowers will be proactive in pursuing loan modifications
and exploring alternative strategies to recapitalize assets.
6. Globalization. While no region of the world is
immune to financial turmoil, regions such as Asia Pacific, the Middle East
and North Africa and Latin America may offer stronger alternatives in the
lodging sector during this slow down. Countries in these regions have large
and growing economies and population bases with a relative scarcity of
hotels. Look for China, India, Vietnam and Brazil to be among the leading
future growth markets.
7. Green. Green hotels are gaining momentum internationally
and in the US where 415 hotel projects have achieved or registered for
LEED certification with the US Green Building Council. With more governments
promoting green building and some poised to penalize large carbon footprints,
such as convention and urban hotels, look for more green renovations to
take place, especially if a dedicated LEED certification for hotels comes
into place in the US as expected later this year.
8. Values. Look for the Financial Accounting Standards
Board's (FASB) Statement No. 157, Fair Value Measurements, to become more
important for hotel companies this year as investors look for more clarity
amid a downturn in hotel and real estate values.
9. Alternatives. The timeshare and cruise sectors
of the hospitality industry - once thought to be more recession proof -
have been hit hard by the economic downturn. Cruise operators have downsized
their offerings, cutting some Australian and Mediterranean routes in favor
of cheaper and shorter routes from Baltimore and Miami requiring little
or no air travel.
10. Stimulus. Any funneling of additional federal dollars
into US infrastructure would have a positive long term impact on the domestic
hospitality sector by improving access to major tourist destinations and
encouraging domestic travel and other aspects of proposed stimulus programs
in the US could also benefit the lodging industry.
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