Last week’s International Hotel Investment Forum in Berlin saw operators highlight, not for the first time, the age and impenetrability of the European hotel sector. Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation, was but the latest with the comment "most of the great sites in Europe were taken 500 years ago".
Many brands took the opportunity of the conference to highlight their expansion plans in the region, in various states of stability. Further evidence that pipeline and system growth are the new measures of success for operators.
Hilton Worldwide announced that it had the largest number of rooms under development across the region – with 15,411 hotels in its active pipeline and 8,643 rooms under construction – citing STR Global research which gave it 12.4% and 14% of the industry totals, respectively.
The company has identified key strategic development markets across the region including the UK, Germany, Italy and Turkey and has, over the past three years, introduced brands such as Waldorf Astoria Hotels & Resorts, Doubletree by Hilton, Hilton Garden Inn and Hampton by Hilton.
Not to be left out, Starwood Hotels & Resorts announced that it would open 50 hotels in Europe, Africa and the Middle East over the next three to five years. The group has yet to identify these hotels, but said that more details of 12 of them would be revealed this year. Key markets for the group are Russia and Turkey. Simon Turner, president of global development for Starwood, said: "We are targeting new-build and conversion opportunities across all nine of our world-class brands, with particular interest in Europe’s fastest-growing markets throughout East Central Europe."
Europe remains a popular region for development, with STR Global’s January pipeline data reporting that 747 hotels were in various stages of development, against 2,997 projects in the US. The region’s high barriers to entry, including cost of development and difficulty of finding sites means that, in these debt-strapped times, the opportunities to enter the market are even tighter than during more normal conditions, as is shown by the high asset prices in key markets. For that reason, Starwood’s Turner has drawn attention to the company’s interest in conversions.
While both operators are confident in their pipelines, the reasons which make Europe so tough to enter are also the reasons why they may not meet their ambitions. Hotel projects face cancellation all the way through their development and even then may not take the flag they had originally agreed, either through lack of development finance or a change in heart on the part of the owner over the flag, hotels being notoriously personal projects.
The terms used to describe the plans are also open to negotiation. During the IHIF Mark Lomanno, president, STR Global, defined active pipeline as loosely as "some sort of momentum forward". The company’s pipeline data splits active pipeline into projects in the In Construction, Final Planning and Planning stages, but does not include projects in the Pre-Planning stage.
A further group reporting additions to its estate at IHIF was Marriott International, which has added four hotels in Spain to its Autograph Collection as part of its joint venture with AC Hotels and its portfolio of 9,100 hotel rooms in Europe. The joint venture also includes the launch of a new brand, AC Hotels by Marriott, which will initially be comprised of up to 86 rebranded AC Hotels in Spain, Italy and Portugal, plus the four hotels joining the Autograph Collection. These hotels are a certain addition to the group’s holdings and provide one way to guarantee growth.
Alex Kyriakidis, global managing partner of tourism, hospitality and leisure at Deloitte, commented: "We see co-branding partnerships between major local brands and global hotel chains as a significant future trend. The coming together of well-known and trusted brands in similar relationships will enable them to reach a whole new customer base, increase their global footprint and provide them with a clear platform for future growth."
HA Perspective: There are a couple of big issues with the pipeline debate. Firstly, it is one of defining what can properly be classified as being in a pipeline. There are no formal parameters for this and, at best, the data announced by companies should be viewed as indicative with the movement in numbers being more important than the absolute numbers given.
Secondly, conversions and co-branding tend to be both irregular and absent from pipeline numbers. And yet conversions and co-branding are likely to deliver far greater numbers of rooms to a hotel brand company’s system, particularly in Europe.
Take for example the case of Marriott’s deal with AC which alone adds just less than 10,000 rooms to Marriott’s system. And Wyndham is adding almost 11,000 rooms to its system thanks to its deal for Tryp with Sol Melia.
There remains the question of how many of these rooms fit existing brand standards. Both Marriott and Wyndham have chosen to bolt new brands onto their systems rather than reflag everything under one of their existing badges.
Despite this standards issue, system growth in Europe is not going to be simply a question of pipeline size.