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Italy hotel market climbs, midscale a muddle
April 23 2014

Global, upscale travelers seeking culture and cuisine have boosted Italy, but hampering it domestically are the glut of independent midscale hotels and lack of a post-recession plan.

  • Horwath: Italian hotel sector grew 25.4% in 2013 from 2012.
  • New, young Italian prime minister hints at cut in corporation tax.
  • The large majority of Italy’s 33,000 midscale hotels are independents.

REPORT FROM ITALY—Independent, midscale hotels dominate the depressed Italian domestic hotel market, with international chain penetration only being a force in the upscale and luxury sectors that cater to a global clientele, according to sources.
While Italy has been linked with the wobbling economies of the PIGS (Portugal, Italy or Ireland, Greece and Spain) nations, experts said the country’s hotel sector throughout the recession held up relatively well.
“Much talk is of Italy losing its competitive advantages, but it is doing better and better, mostly from international guests, although it has lost opportunities in regards to attracting Russian, China and Brazilian markets. Italy’s domestic market is slow,” said Giorgio Ribaudo, project manager at Horwath HTL’s Rome office.
The country ended 2013 with a 4.7% increase in occupancy to 61.1%, a 1% increase in average daily rate to €126.90 ($175.63) and a 5.7% increase in revenue per available room to €77.58 ($107.37), according to data from STR Global, sister company of Hotel News Now.
Milan’s average daily rate during 2013 was €128.74 ($176.61) in 2013, down 15.2% from its prior peak of €151.77 ($208.20) in 2008. The market’s average occupancy of 63.3% in 2013, however, was its highest since 2008.
Rome’s average occupancy in 2013 was 67.1%, a 0.7% increase from 2012. Rome’s ADR in 2013 was €145.44 ($199.52), a 0.5% increase from 2012.
According to STR Global, there are 28 hotels comprising 4,793 rooms in Italy’s pipeline, with 15 hotels comprising 2,392 rooms under construction.
A few notable, recent Italian hotel deals have all been within upper tiers.
The Four Seasons Hotel Florence, in the 15th Century Gherardesca Palace, was bought by the Emir of Qatar in April 2013 for €150 million ($207 million) or €1.29 million ($1.78 million) per key. In September 2013, The Dorchester Collection purchased Rome’s 121-key Hotel Eden for a reputed €105 million ($145 million).
Opening this year is the 266-key JW Marriott Venice Resort & Spa in a management agreement with an affiliate of Aareal Bank AG. It is the brand’s entry into Italy.
According to Horwath, the Italian hotel sector has a chain penetration of 3.6% in terms of hotels and 12.7% in terms of rooms. Rome, Venice and Florence still pull foreign guests, but Italians see more value in equally sunny European countries such as Croatia, Greece and Montenegro, Ribaudo said.
Midscale murkiness
According to experts, three issues affect the Italian midscale market:
  • A high number of midscale hotels means that whatever a chain does in that segment seems small.
  • Eighty-four midscale properties (1.6% of total market, according to Horwath) are from international chains.
  • Regional differences in standards and demand vary greatly.
Ezio Poinelli, director of development for Italy at consultancy HVS, which opened its Milan office in 2012, said “a 3- or 4-star city property, depending on location, can do well, but secondary cities are suffering. 2013 was a year of imbalanced results. It showed the same level of occupancy as did 2012, but there was less revenue, especially in the budget and midscale sectors. That said, on average Italy closed with 2% more international arrivals.”
Ribaudo said international chains are targeting major Italian cities, and in leisure destinations some hotels are beginning to convert to management contracts, which was unusual until the midpoint of the last decade.
“Italian owners and lenders deal quite easily now with management contracts. They have got them into their mindset,” Ribaudo said.
Poinelli said the majority of Italy’s 33,000 hotels also are over-leveraged. While times are tough for domestic hotel companies, most are attempting to become more asset-light, he said. 
Starhotels and Atahotels, two of Italy’s major domestic hotel chains, were not available for comment as of press time.
Italy has a slight spring in its step thanks to the 22 February ascension of new prime minister, 39-year-old Matteo Renzi.
“Renzi is promising much, such as cutting inefficient public spending and corporation tax, by an expected 10%, an incredible incentive for both international money and unlocking domestic capital largely sitting unused in banks,” Ribaudo added.
Poinelli is adamant that Italy needs a concrete political plan to recover from recession.
“We need a special plan to help reconvert properties in main cities. For years, this discussion has been on hold, and basically many hotels are old and not of international standard—high prices for low quality. We need incentives to take on capital expenditure, and it is not as though the banks have not been willing,” Poinelli said.
Poinelli also said Italian destinations lack the critical mass of places such as the Algarve, Portugal, and Costa del Sol, Spain.
La Dolce Vita
According to experts, there is a good stream of international money for trophy assets, especially from Taiwan, Qatar and Russia. If Renzi’s plans go into operation, the numerous, domestically funded projects that have sat for quite some time might move.
“I believe Sardinia and Sicily will do well, as there is a clear product to sell, and the region of Umbria is poised to be a second Tuscany. Also, the southern region of Apulia (Puglia) is attracting interest,” Ribaudo said.
“The luxury sector will do well for a long time, with the new rich from emerging countries allowing increased investment, but growth in midscale really depends on what the economy will do both in Italy and in the rest of Europe. The Italian government even talks of providing incentives to Italian families to take (vacations) inside Italy outside of the main (vacation) month of August,” Poinelli said.
Eloise Rothschild
4/24/2014 12:49:00 PM
Interesting picture, great article!
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