Hotel Industry Optimism for 2013 Fuelled by Restructuring Boom

LONDON, 13 February 2013 - Restructuring will continue to generate the most activity in the hotel sector according to leading hotel operators, banks and investors at the annual Hogan Lovells, TRI and Savills hotel conference. Over 150 delegates were surveyed about their confidence in the future of the UK hospitality industry at the event held in London last week.

The results revealed a positive increase in industry confidence compared to the previous year, despite an expected decrease in RevPar:

  • Levels of confidence: Half (50%) of respondents were optimistic or very optimistic about the prospects for the UK hospitality industry over the next 12 months, up on 2012.
  • RevPar: Only 30% believe that the revenue per available room (RevPAR) will increase in London in 2013, representing a dramatic decrease from 2012 when 83% thought it would increase. The outlook for regional RevPar was darker still - 42% think it will decrease in 2013 and less than a quarter (23%) expect an increase.
  • Areas of activity: given the current climate, it is unsurprising that 42% of those surveyed expected restructuring to generate most activity in 2013. This was followed by refinancing (29%) and forced or distressed sales (21%), further reflecting the current market.

Jackie Newstead, co-head of Hogan Lovells' hotels, leisure and gaming practice, who canvassed delegates on the outlook for the hotel sector in 2013, said:

"The hotel conference is attended by representatives across the hotel industry, so it offers the perfect opportunity to gain a balanced view of the market in the current climate from industry experts. Unsurprisingly, restructuring and insolvency related activity was highlighted as key over the next twelve months, so whilst delegates were optimistic, they didn't see a return to a normally functioning hotel investment market".

The conference explored the current and future state of the hotel market. Nathan Alemany of Visit Britain presented to over 200 guests on his outlook for hospitality and a panel of carefully selected hotel sector experts including Peter Anscomb, Director at Radisson Blu Edwardian and ex-head of hotel finance at RBS; Jane Moriarty, Restructuring Partner at KPMG; Shane Harris, CEO at Jupiter Hotels; and Desmond Taljaard, COO Europe, Starwood Capital Europe Limited; discussed some of the challenges facing the industry, including how to kill the zombie hotels which are a drag on the market as a whole. David Bailey, Deputy Managing Director of TRI, gave a review of the 2013 operating environment and Michelle Webb, Director of Hotel Transactions, explained the problems in getting hotels sold in the current market.

Commenting on the conference David Bailey of TRI said:

"Booking agents' commission (sometimes as much as 30% of room rates) is growing faster than average room rates which, combined with increases in other hotel costs, is impacting hotels' profitability. Delegates recognised that a hotel's revenue alone says nothing about how profitable it is and that RevPAR is becoming less useful as a performance benchmark.”

Michelle Webb, Director of Hotel Transactions at Savills, added:

“Maintaining deal momentum in the current market is critical, but faces difficulties due to fewer qualified investors, more stakeholders to consult and a challenging debt market. Despite this however, 2013 looks set to see an increase in hotel transactions, with an estimated £1bn of transactions due to happen early in the year, and a more optimistic outlook from many delegates attending the event.”

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