NEW YORK—It wasn’t that long ago when there was little interaction between the Western Hemisphere and Eastern Hemisphere. In the early 1990s even, people of the West and people of the East kept mostly to themselves.
Fast-forward 20 years and technology has enabled constant communication and travel between areas throughout the world. People exchange trade and visit each other for leisure, for education, for business, etc.
As a result, hoteliers from global regions addressed the increasing globalization of the hotel industry during the NYU International Hospitality Industry Investment Conference.
“When you look at the span of time that things have happened, and then look ahead, you can say so much more has to happen. You can see the beneficial effect this has on the human race as we get to know each other and the fear of each other dissipates,” said Alfred Pisani, founder and group chairman of Corinthia Hotels. “There is no better industry to help people get to know each other better.”
For that reason—coupled with the lack of growth opportunities in the United States—many hotel companies have their eye on international expansion. Marriott International’s pipeline, for example, is largely focused on developing countries outside the U.S.
“STR will tell us that in the U.S. there are just under 5 million hotels rooms, 70% of which are branded. There are only 14 million hotel rooms outside of the U.S., of which 50% are branded,” said Alex Kyriakidis, president and managing director of the Middle East and Africa regions for Marriott. “The message is clear: There are a huge number of developing countries that represent a blank piece of paper and pipelines for the global chains will reflect that.” STR is the parent company of HotelNewsNow.com.
Relatively, Kyriakidis said the hotel industry still is in an infancy stage in becoming a truly global industry.
“There is so much of the world where the industry just is not there yet,” he said. “There are robust opportunities outside of the U.S.”
Montage Hotels & Resorts is focused internationally simply because their options in the U.S. are rather limited, said Alan Fuerstman, founder and CEO. Montage has four properties in its portfolio: two in California, one in Utah, and a resort in Los Cabos, Mexico.
“Montage is ultra luxury, which we classify as over $500 room rates. There are only so many destinations in the U.S. where we could actually put a Montage hotel,” he said. “There are great cities in the U.S. that just wouldn’t support a Montage. However, there are great gateway destinations in Europe that represent stronger opportunities.”
However, Christopher Cowdray, CEO of the Dorchester Collection, said while brands are focused globally, hotel owners are typically concerned with their particular region. Owners of assets aren’t really global yet, he said.
Hotel executives also took time to identify some of the hottest regions for global development.
China: Despite the recently slowdown of growth in the Chinese real-estate sector because of government regulations, there is a functioning debt market in China to complete hotel projects, said Keith Barr, CEO of the Greater China region for InterContinental Hotels Group.
“The Chinese government is very focused on our rights in China, ensuring there is a level playing field with the domestic chains,” he said.
How does IHG decide the right brand, the right location and the right partners in China? Plenty of research and due diligence, Barr said.
“We’re often looking at three, four, five different projects in cities we’ve never heard of,” he said. “We’ve got reports on the gross domestic product of the top 100 cities in China. Where they’re at today and where they’ll be in five and 10 years.
“So many cities have national resources, but that doesn’t mean you should put an InterContinental hotel there.”
Barr said Chinese urban planning is done far in advance and that each city has mapped out where the office, retail and hotel space should be, which helps IHG determine location.
“They get it right eight times out of 10,” he said. “Occasionally local government will have a changeover and the new leaders will have a different view.”
Barr said outbound travel from China also is important to IHG and the increase in Chinese outbound travelers will have a significantly greater impact than the ramp-up of outbound Japanese travelers during the 1980s.
“You haven’t seen anything yet,” he said. “Look at the number of urban wealthy and how small it is today and how fast it will grow over the next 15 years.”
Brazil: Christian Karaoglanian, chief development officer for Accor, said the company is looking at emerging markets more than ever. Accor came to developing in Brazil early on and now competing brands are playing catch-up.
However, new construction in Brazil is difficult, which is why the region is underdeveloped in terms of the number of hotel rooms, he said.
“For the first 35 years, we were disappointed in the hotel side of the company (in Brazil) and for the last 10 years we’ve been very happy with Brazil, especially what has happened in the past few years,” he said. “Brazil is now achieving what we were expecting.”
Karaoglanian said developers control the land in Brazil and available land is difficult to come by. It’s difficult to be the first one to find a site, he said. On top of that challenge, there are hardships surrounding permits in Brazil.
For that reason, most Accor projects in Brazil are brought to the company by developers.
“It takes another two to three years to start construction,” he said.
However, limited supply growth has led to fantastic demand in Brazil, and hoteliers have been able to capitalize with strong rate growth. Room rates in Sao Paulo are more than $120 across Accor’s portfolio, Karaoglanian said.
India: “If I had to choose a place to invest, I would choose India,” said Manav Thadani, co-founder and director with SAMHI Hotels. “Even in a bad year, we think occupancy will go up. Some rates will go down, but most markets will see an upside over the next 12 months.”
Because India is a truly emerging market, Thadani said hotel room supply is far below the world average. By 2021, India will need 180,000 rooms to match demand; the country now has 73,000 rooms. Getting there will take $25.5 billion in investment to the hotel sector, he said.
“We have a long, long way to go before we start worrying about oversupply in India.”
In India, developers can get inexpensive land not zoned for hotels, but then it’s a process to get the zoning changed. Instead, Thadani suggested buying land already zoned for hotels.
There is an active debt market in India, but the cost of debt is expensive—interest rates are approximately 13%, Thadani said. For hoteliers with good credit ratings, raising debt is not a problem, he said.
“Brands love to sign up in India,” he said. “If they sign 100, they’ll probably open 40. Certainly, you see a lot of signing up but not too much happening on the ground.”
Africa: Hotel development in Africa received positive feedback from hoteliers doing business in the region. Accor’s Karaoglanian said Morocco has big potential for both corporate and leisure travel.
Marriott’s Kyriakidis said the transition to a middle class in Africa combined with the country’s increased airlift is aiding development. Today, Marriott has hotels in three countries in Africa, he said; within three years the company hopes to be in 10 countries in Africa.
“Owners in the region are of the view that (the hotel) is their asset,” he said. “They don’t look at us to say, ‘Give me sliver equity.’ They want to own the hotel 100% so most of our opportunities there are in management.”
Karaoglanian said Egypt, overall, is not as bad as the political unrest is making it look.
“Overall it’s not so terrible; you don’t see anarchy in the country,” he said. “No hotel operators have closed any properties. There is a lack of demand, clearly. We have a wonderful Sofitel in Egypt, and we are not sold out these days.”