Although fears of complete economic meltdown have largely subsided, it is still a precarious time for the European hospitality industry. The need for banks to build capital buffers has made them less inclined to lend, making it ever harder for developers to finance new projects.
The same banks hold distressed hotel assets worth many millions of dollars. While increasing numbers of these were rebranded and brought back to the market during 2011, there is still uncertainty over what will happen to the rest.
Go deeper with GlobalData
These factors make one recent announcement all the more surprising. According to a February data release by STR Global, one in six hotel rooms currently under construction in Europe carry the Hilton Worldwide brand. Of the 54,587 rooms in the pipeline, 18.2% belong to the company, its share of rooms doubling over the past two years from 6.9% to 15%.
Growth in Europe has been so strong that for the first time in its history, Hilton will have more rooms under construction outside of the US than within. According to Patrick Fitzgibbon, the company’s senior vice-president for development, Europe and Africa, the region’s strong fundamentals have overridden any other concerns.
"Europe is absolutely a key growth area for Hilton Worldwide," he says. "It accounts for 8% of global room count. Looking ahead, with more than 115 new hotels opening in the next three years, it will make up 13% – a sign of the focus we place on the region. The fundamentals of industry supply are as strong as we have seen."
See Also:
It is no surprise that Eastern Europe accounts for a large percentage of new build activity. Hilton has 27 hotel openings planned for Russia, 15 for Turkey and 13 for Poland across the company’s six regional brands. Although less dynamic, Western Europe is showing clear signs of recovery. A total of 18 new developments are planned for the UK, along with significant high-end openings in Berlin and the Algarve.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData"We are witnessing rapid expansion in Eastern Europe, particularly our mid-market and economy brands," says Fitzgibbon. "While Western Europe is a more mature market, there remains significant opportunity for the conversion of existing hotels and the development of new ones.’
"The appetite is still very much there to develop hotels in the right market and to convert existing independent supply to world-class brands. However, funding is probably more difficult to obtain today than we have ever seen it. Developers are having to work hard to secure debt for new developments."
Brand association
Even in the right market, difficulties obtaining finance have encouraged greater creativity on the part of both developers and chains. The former have realised the value of strong brand association when starting up in a tricky economic climate. The latter are dealing with a broader range of partners, with varying requirements and a number of heavyweight brands to choose from. This requires a degree of give and take.
"There has been a significant change in loan-to-value ratios, which in turn has led to more creativity and focus," explains Fitzgibbon. "There is demand for more choice and branded accommodation in many markets, a gap we are well placed to fill."
The flight towards brands has sparked the growing popularity of the franchising model throughout Europe. Its potential benefits are clear, with the franchisee taking advantage of the hotel chain’s distribution expertise and globally recognised branding. Moreover, there are often direct impacts on occupancy rates and customer satisfaction. A positive relationship between hotel group and developer tends to lead to higher profits: one Canadian study of branded hotels reported an average operating profit margin of 24%.
The franchise revolution
For Europe’s many independent hoteliers, franchising has come to seem an attractive proposition. They desire the safety net of strong brand association, while maintaining operational independence and their own personnel.
"Growth remains a long-term game and there are developers taking advantage of the less-competitive environments to secure great sites," says Fitzgibbon. "These partners range from large organisations to smaller companies diversifying their portfolios, as well as individual entrepreneurs."
Hilton Worldwidehas carefully positioned itself to capitalise on this trend. "At Hilton Worldwide, our focus is now very much on both management and franchise agreements, with roughly a 50/50 split in our pipeline," Fitzgibbons continues. "The franchising model is more established in the US than it is in Europe but we are seeing more hotels move in that direction today. There are huge growth opportunities for both models and Hilton Worldwide offers the flexibility of both."
When asked whether Hilton Worldwide’s growth in Europe is indicative of its competitors’ lack of faith in the market, Fitzgibbons refuses to be drawn. As far as he is concerned, the company will continue on its course of development and try to attract the people that can make it a success.
"We have remained focused on growth and relationships across the region," he says. "Investors have faith in Hilton Worldwide’s people and brands, and are choosing to work with us. Our strategy is to encourage more quality people into the industry. Our European pipeline will help create and safeguard 11,000 roles over the next three years."
Hilton Worldwide’s strong growth is certainly good news for Europe’s hospitality industry. With financing proving difficult to come by, it will be interesting to see whether the company’s success is an anomaly or indicative of the first signs of genuine recovery.
