16 Mar, 2009
Hotels Fear Slew of Bankruptcies in 2009
Berlin – A survey of 261 European hotel executives has revealed a worse-than-expected outlook for the hospitality industry with 79% of respondents predicting hotel chain bankruptcies in the next twelve months. Four in ten hotel executives anticipate that more than five chains will go into administration in the next year.
In the United States, a separate survey of 122 hotel executives by the same corporate law firm, DLA Piper, found that the largest percentage of respondents (36%) expect at least 1-2 hotels chains to file for bankruptcy in the next 12 months, while another 35% expect 2-5 hotel chains to file for bankruptcies.
Hotel executives in both Europe and the U.S. expect industry performance to hit record lows in 2009, with business travel being worst hit.
The two hospitality outlook reports were launched last week at the International Hotel Investment Forum (IHIF) in Berlin. The survey forms were distributed to the U.S. hotel executives in January and to the European hotel executives in February.
According to the European survey, European hospitality executives are less optimistic about the health of their industry than their U.S. counterparts. Only 39% of European hotel executives expect the industry to recover in 2010, compared to 59% of U.S. hotel executives. Over half of European executives (52%) do not expect a recovery until 2011.
Respondents cited two main reasons for their level of pessimism – the inability to raise capital in the current market (43%) and the struggling European economy (33%).
However, for well-capitalised investors there are opportunities in the current market – eight out of ten respondents recognise the ‘good’ buying opportunities, with the economy/budget hotel sector representing the most attractive investment opportunity.
Karen Friebe, global co-chair of DLA Piper’s Hospitality and Leisure practice, was quoted as commenting, “The survey shows that the pessimism in the industry is in part due to concerns over raising capital and reviewing existing borrowing. We see this key area of restructuring the stakeholder position becoming dominant in the industry in the third and fourth quarters.”
The DLA Piper research yielded a number of other interesting conclusions among the Europeans:
<> 84% of respondents describe their 12-month outlook for the European hotel industry as ‘bearish’.
<> 81% expected hotel assets to go down in the next 12 months.
<> 70% of respondents are witnessing a significant reduction in business travel.
The survey of U.S. hotel executives reported the following conclusions:
<> 93% of respondents describe their 12-month outlook for the U.S. hospitality industry as “bearish.”
<> Among the small minority of U.S. respondents (5%) who describe themselves as “bullish”, half of these attribute their confidence to investment opportunities created by the financial crisis.
<> The struggling U.S. economy (68%) and lack of liquidity (21%) top the list of concerns for “bearish” respondents.
<> Despite widespread media reports surrounding the expected decline in business travel, only 8% of “bears” cited this as the primary reason for their lack of confidence.
<> 62% of respondents expect that the full-year 2009 U.S. hotel occupancy rate will drop below the previous record low of 59% , which was set in 2002.
<> Experiencing a significant reduction in business travel, 9 out of 10 respondents do not think that U.S. luxury hotels will rebound in the coming year.
<> The largest percentage of U.S. respondents (43%) believes that the current recession has had a greater impact on revenue per available room (RevPAR) than any other previous recession during the past 30 years.
<> Reflecting lower occupancy rates and lower daily rates, 9 out of 10 U.S. respondents think that hotel asset values will decline during the next 12 months.
<> 59% of respondents do not expect the U.S. hospitality industry to rebound until 2010, while another 33% do not foresee a rebound until 2011
<> 77% of respondents rank the midscale and upscale sectors of the hospitality industry as the two most attractive investment opportunities in the next 12 months. 16% report that the luxury sector represents the most attractive investment opportunity.
<> 2 out of 3 U.S. respondents think that current market conditions have created good buying opportunities for well-capitalized investors.
<> Most of the U.S. respondents think now is a good time to buy, but they don’t expect the U.S. hospitality industry to rebound until 2010 or 2011. This inconsistency suggests that even better buying opportunities will surface later in 2009.
<> 52% of U.S. respondents expect that private equity investors will be the most active in the U.S. hospitality industry in 2009, followed by foreign investors (25%).
<> 29% expect commercial banks to be the most active lenders in the U.S. hospitality industry in the coming year, with 26% citing mutual insurance/assurance companies. Respondents also expect that pension funds, investment banks and hedge funds will also be active lenders in 2009.
<> 66% of respondents rank the reduction of operating expenses as the top measure that will be emphasized to protect their organizations’ bottom lines.
<> Searching for other areas in which to maximize their operations and capital resources, respondents rank “rightsizing” staff and deferring capital expenditures as the No. 2 and No. 3 most likely strategies, respectively.
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