Despite the crisis - the hotel industry remains confident

by   CIJ News iDesk III
2022-11-02   08:32

Cautious economic outlook coupled with operational cost pressure is slowing down the investment market

The current mountain of crisis is leaving its mark: The Ukraine war and its consequences, but also pent-up industry problems have significantly weakened the upswing of 2019 in the hotel industry. The cautious perspective is also slowing down investments and transactions, but not belief in economy hotels and in the tourism and leisure segment. This is the result of the current Hotel Investment Barometer, the autumn survey by the specialist publisher HospitalityInside and Union Investment.

"We consider the budget and economy segment, which is significantly more cost-efficient than other hotel segments, to be particularly resilient even in this phase of the crisis, but also the luxury segment, in which guests tend to be less price-sensitive - even in recessionary phases," says Andreas Loecher, Head of Investment Management Hospitality at Union Investment.

Because higher personnel and energy costs are squeezing margins, Loch believes that full hotels that offer the entire program from accommodation to food and beverages to fitness and wellness are having a harder time in the current situation.

Economic perspective as the strongest brake

The autumn survey took place between September 23 and October 24, 2022 and clearly shows: Seven months after Russia's attack on Ukraine, all indices are falling again, but not comparable to the dramatic slumps in Corona year 2020.

Consultants/brokers, hotel operators, project developers, owners/investors and financiers were most strongly represented in the survey (85%). 74% stated that they were active in the DACH region, 34% also in the rest of Europe.

Disruptions in the supply chains, inflation, interest rate increases, staff shortages: the burdens on hotel owners and hotel operators are high. So it is not surprising that the transaction volume in the DACH region is as good as standing still. The vast majority of respondents (66%) cannot estimate when the purchase volume will return to the pre-corona level.

The clear majority (43%) see the subdued economic outlook as the reason for the slowed-down investment market, ahead of higher interest rates (33%) and the war in Ukraine (20%).

Budget and leisure remain attractive

The hotel experts draw hope from individual segments: 58% of those surveyed consider economy/budget hotels to be the most attractive segment in the next 12 months. No wonder: With their lean cost structures, they move robustly through every crisis. And the travel boom in the Corona summer of 2021, as well as this summer, is strengthening the confidence of experts in the tourism and leisure segment. Travel is now simply part of the leisure DNA of the population. This summer, for the first time, the hotel industry was able to push through significantly higher prices across the board.

"With the advancing professionalization and the mitigation of the seasonality that has so far been very pronounced, the asset class of holiday hotels will continue to gain in attractiveness in the future and also establish itself with institutional investors," says Andreas Loecher attractive opportunities for portfolio diversification, with long-term value growth even beyond economic crises."

Two indices are stable

So the hotel experts are not despairing, despite the current multiple burdens. Doubts are clearly visible in the survey results. In the business index, the majority of those surveyed in September/October rated the market situation for their own company as good (33%) and satisfactory (45%), so that the index remains stable at the previous year's level.

The picture is similar for the Operation Index, which asks about the current mood in the hotel industry with regard to sales development: 27% are in good mood, 54% are satisfied and 18% are skeptical, so the index remains stable compared to the previous year.

The Development Index, on the other hand, fell the most at -21%. There is currently almost no financing for new construction projects, which is reflected in the expectations: for the majority of those surveyed, the prospects are bad (42%) or very bad (15%) – compared to 36% who are satisfied and 6% who are good and very good Expectations.

Overall business expectations are down "only" by 17% compared to last year's Expectation Index. For the next six months, business expectations remain the same for 43% of those surveyed, but 29% expect worse development and 27% hope for good business.

At 2893 points, the overall index is down 10.5% yoy, but it remains well above the record low of 2020 with an overall index of 2130 at the time.