Executives at business consultancy Whitebridge Hospitality and legal firm Mayer Brown said they expect the hotel industry’s recovery to continue even though yields often are weaker, operating costs often are higher and lenders often are more reluctant.
Whitebridge hosted its first fully in-person conference in several years to present its predictions and analysis for the industry in 2024.
Hotel transaction volumes in Europe were sluggish in 2023, but the recent Travelodge-LXI REIT Advisors deal “boosts things a little,” according to Nick Pattie, managing director at Whitebridge.
In that deal, valued at 210 million pounds sterling ($268 million), economy hotel operator Travelodge acquired 66 hotels, all in the United Kingdom, from one of its major, long-term landlords, LXI, to be held under a newly created holding company.
Philip Camble, director at Whitebridge, said the deal came a day after Italian owner Grupo Statuto acquired the 135-room Mandarin Oriental, Paris, for €205 million, or more than €1.5 million per key.
The evening conference was held one day before Starwood Capital Group acquired 10 Radisson Blu Edwardian hotels in London from Edwardian Hotels.
Camble and Pattie alluded to an escalation in deals this year.
“Smaller, independent hotels are coming to the market with good prices. Smaller, privately owned businesses are attractive, but labor is a notable expense, with the minimum wage in the U.K. going up again in April,” Pattie said.
He added that wages have risen 28% over a three-year period.
“Wage increases are long overdue, so this is welcome, even if the costs are weighty for hoteliers,” he said.
Camble said energy will remain a big cost and mused on developing a new industry metric — utility costs per available room.
Never a Dull Moment
Several outside forces and macroeconomic concerns are likely to have an impact on the hotel industry this year.
“More than half the world is to vote in 2024,” Camble said. General elections are to be held in the U.S.; Ghana; Indonesia; Mexico; Pakistan; Russia; South Africa; and, with the largest number of voters by some distance, India, among many others. The European Union also has elections this year.
Camble said challenges will range between the “shifting sands of finance to the mudslides in politics.”
France is looking forward to two events this year — the Paris Olympics in the summer and the December reopening of the cathedral of Notre Dame, destroyed by a fire in April 2019.
India is one developing nation likely to go from strength to strength in 2024, Camble said.
“Its Chandrayaan-3 [lunar expedition] was the only moon-landing project to be successful in 2023,” he said.
On a positive note, Simon Price, partner at Mayer Brown, said he's optimistic that once interest rates begin to fall later this year, hotel transactions are likely to pick up.
“That trend is expected to continue based on the number of loan maturities and low, short-term liquidity. Lenders will be more confident in forcing positions if the investment market returns,” he said.
He said he expects more owner-friendly documents; stress in the investment market; increased investor scrutiny; an increased proliferation of brands; and added pressure on operators to share risk.
Flexibility will also lead to more franchise rights being enacted; owners taking control of certain areas of the hotel, such as food-and-beverage outlets; the increased prevalence of key money and guarantees; a focus on owner priority returns; and lower base fees.
Camble said he predicts London revenue per available room will increase by more than 10% across the full year, but in the luxury segment that metric will decline by about the same percentage “due to stiff competition.”
Another U.K. worry, he added, are the number of local councils — city administrations — that have dallied with bankruptcy or will do so over the next 12 months.
“There have been six since 2018, and I predict more,” he said.
Looking Back
The European hotel transactions market in 2023 was dominated by the Saudi Arabian Public Investment Fund’s acquisition of 49% of Rocco Forte Hotels for £590 million ($750 million), Whitebridge’s Camble said. That deal valued Rocco Forte Hotels at £1.2 billion.
Significant single-asset transactions included the Henderson Park sale to Dubai Holdings of the Westin Paris for €650 million, or more than €1.5 million per key, and Gruppo Statuto’s acquisition of the Six Senses Rome from Orion Capital Partners for €245 million, more than €2.5 million per key.
Camble said the region that seemed most sluggish in the year was the Middle East, although its investors increased their activity, partly due to that Rocco Forte deal.
North American buyers in Europe fell once again, but there was a big increase in sovereign wealth, he said.
“Little distress exists, with a slight increase in regional U.K.” he added.