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Anarchy in the UK – Disruption and Innovation in the Hotel Industry

04 February 2016
The annual Hogan Lovells CBRE Hotel Conference
Anarchy in the UK – Disruption and Innovation in the Hotel Industry

It's good to share – that was the message from Alex Stephany, former CEO of JustPark, who was the keynote speaker at our conference this morning, interviewed by Jonathan Langston, COO of CBRE Hotels. And it's not just AirBnB. All hotels hold assets with "idling capacity" which can be "shared" to generate extra revenue.

2015 was the year with the highest ever level of investment and the lowest yields, according to data from David Bailey, Senior Director of CBRE Hotels.  But the operating cost profile is changing: full service hotels are currently spending 8% of their revenue on booking agents' commission, compared to 1% at the turn of the century. The slice of revenue devoted to sales and marketing also grew over the same period from 1% to 7%.

The net is closing on rate parity in Europe, on a country-by-country basis as observed closely by Angus Coulter, head of our Antitrust Competition and Economic Regulation practice. He warned that even a change of hotel management can require notification to the European Commission for merger control clearance and that there are large penalties for failure to notify or closing a deal before obtaining that clearance.

Ed John, senior associate in our Hotels team, gave a brief explanation of why hotel owners benefit from using a competitive tender process to appoint operators and insisting on Service Level Agreements with key performance indicators – and to be wary of performance termination clauses.

Rob Seabrook, head of agency at CBRE Hotels, reported on portfolio-led investment volume in 2015 of £9.2 billion.  Included in that was the sale in September 2015 of the Bulgari Hotel London from Abu Dhabi Financial Group to Rosalia Mera / Prime Investors Capital for £270 million, an 85-bedroom hotel with a record price tag of £3.2m per key.

Philip Cropper and Ian Corfield of CBRE Hotels' Corporate Finance practice explained that:

  • €273 billion was invested in European Commercial Real Estate in 2015 (25.4% of which came from outside of the European region)
  • €23 billion was invested in European Hotels in 2015 (42% of which came from outside of the European region)
  • 13.5% of all capital from outside of the European region was invested in hotels.

There has been a blurring of the profile of investors seeking returns from equity, preferred equity, mezzanine & senior debt – with many agnostic as to how they deployed capital and delivered returns out of Real Estate.

Andrew Sangster, editor of Hotel Analyst, moderated a panel with Alastair Campbell of GLH Hotels, Guy Pasley-Tyler of Host Hotels & Resorts and Michael McCartan of Duetto Research. They tackled questions of how to get the most out of the brands and explained how hotels can take advantage of their superior knowledge of their inventory and their guests by tailoring the guest experience.

Jackie Newstead, our Global Head of Real Estate and partner in the hotels practice, surveyed the delegates' views and found them buoyant about the prospects of the operating and investment market in the coming year.

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