Deloitte Hotel Investment Conference 2013 Review (part 1) - view from the top

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Nick van Marken, Global Head Advisory - Hospitality, Travel and Leisure, Deloitte started the 25th hotel investment conference with an upbeat outlook saying "It's pleasing not to be depressed any more".
Quoting some impressive statistics, he reminding delegates of the positivism surrounding the hotel investment market at the moment. "There's been £12 billion invested in capital expenditure and development in European hotels since 2008. One third of provincial UK hotel debt is now written off or repaid amounting to over £18 billion. It's clear private equity is now back with Initial Public Offerings being the exit of choice." He continued,"hotel transactions year to date total $116bn which is an increase of over 35%", citing the Hilton and Extended Stay America hotel brands as current examples.

"Sentiment is clearly rising and risk appetite is at a 6 year high with uncertainty receding to a 3 year low." The general consensus was corporates are turning expansionary with a "glass 3/4's full approach, and austerity is almost out of favour" continued van Marken highlighting the fact easy credit is returning, together with a substantial pool of capital.

The focus then switched to economist Roger Bootle who presented a speedy 'round the world' macro-economic report which was a clear reality check for the hotel investor audience, stating "although recovery is taking hold, the underlying causes remain largely unresolved."

His main takeaways were:

China is slowing down but it's not doom and gloom. The country will deliver over 7% year on year growth (meaning the economy doubles over 10 years).

The outlook for the BRIC economies is not "fantastic future GDP growth."

Japan will have a debt issue in the mid-term, currently 250% gross GDP with falls in value of Yen and inflationary pressures.

Commodity prices worldwide will move down over the next few years leading to a boost in consumer incomes and spending.

USA

US recovery fundamentally sound and pace of expansion will pick up.

Eurozone

There has been good reductions achieved in structural and headline budget deficits including around 20% in Greece, "however there is extreme concern regarding the debt raio still rising" said Bootle.

UK

The UK will experience a squeeze on real earnings and inflation will fall back.

When average earnings in real terms start to rise faster than inflation we'll have increased confidence abd consumer spending.

Business surveys and GDP will be positive and the UK recovery is secure with reasonable rate of growth. 

Reasons to be pessimistic with the UK economy:

Debt and financial markets

Shortage of energy, raw materials

Terminal decline of the West

Technological innovation drying up

Where has the recovery come from?

Growth is a normal condition with the passage of time.

There's been some adjustment made by consumers and banks, and corporate sectors have remained strong

Government and Bank of England policy has been stimulative to the economy.

Reasons to be wary:

Growth pick up does not extend to emerging markets

Too much reliance on the housing market and consumer spending

Eurozone problems have not gone away - "the bright spot would be if the Eurozone split up" said Bootle in closing.

Nick then hosted a 'view from the top' interview with both Frits van Paasschen, President & Chief Executive Officer, Starwood Hotels & Resorts Worldwide and Richard Solomons, Chief Executive, InterContinental Hotels Group and both expressed optimism for the hotel sector as the main economic picture improves around the world, with an increase in hotel investment deals happening and people travelling more. "Local developers with local knowledge equals more hotel deals" (continuing) "but if you wanna define the worrying parts of the world economy take your pick" said van Paasschen. The conversation then moved onto how guest experience is being impacted by digital and technology, "Mobile hotel room booking is growing at a rate which is 5 times faster than when the Internet came around 10 years ago."Technology and growth of middle classes will help meet the ever greater guest expectation" said van Paasschen. "You aren't born to live and die in the same town any more" added Solomons.
Moving onto a brief discussion on OTA's (online travel agents) Solomons highlighted the fact that IHG's Priority Rewards loyalty card has over 70 million members and there was a focus on driving more profitable bookings through this channel, stating "OTA's and other distribution channels strengthens the brand" continuing, "lots of OTA's is good for the market offering more choice and more volume, provided margins (commissions) are kept in check." I'm not convinced everybody in the room agreed with Solomons comments, and van Marken emphasized how they now play a very major part in the majority of hotel distribution sales platforms. In closing, OTAs dominance as successful worldwide companies was put into perspective when van Marken highlighted that Priceline's market capitalization is higher than both Google or Apple.

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