BERLIN—Having established its foothold in Europe, InterContinental Hotels Group is taking a new approach to development that reflects the region’s economic volatility and a shift in target markets.
The Denham, United Kingdom-based hotel operator and owner, which has 600 properties and 100,000 rooms in its European portfolio, previously had an EMEA team that focused on Europe and the Middle East. But recognizing the unique challenges and opportunities of Europe in particular, the company has since restructured with a dedicated Europe division headed up by Angela Brav. The Middle East is now part of Asia.
Within Europe, IHG is focusing its efforts on four key areas: Germany, the U.K. (and Ireland), Russia and Turkey, said Robert Shepherd, senior VP of development and design in the region, during a break at last week’s International Hotel Investment Forum in Berlin.
The company has 69 existing properties and another 19 in the pipeline in Germany, which has emerged from the sovereign debt crisis largely unscathed—and possibly stronger, he said. The country’s hotel supply is only 7% branded, which means significant room for growth.
“There’s a huge amount of interest (in Germany),” Shepherd said.
IHG has excellent representation in the U.K., where the company is making an active push to expand its Hotel Indigo brand, he said. IHG has five Hotel Indigo properties open in Europe.
The company has a presence in some of Russia’s major markets, including Moscow and St. Petersburg, as well. Now the focus is shifting outward, Shepherd said.
“As we go into the secondary locations, we are looking much more at a value for money offer with Holiday Inn Express opportunities,” he said.
And while IHG’s development represents the strong opportunities inherent in Turkey, they’re still in the process of evaluating the country’s market dynamics and customer base. “We’ve got to make sure we’re clear on just the size of the opportunity for growth,” Shepherd said.
IHG’s focus on those four countries does not exclude opportunities in other regions, Shepherd emphasized. The company also has a key city strategy, targeting expansion in major urban centers throughout Europe.
Converting on opportunities
“We’ve all felt the lack of debt finance, but what we’re seeing at this conference is there’s a lot of people sitting on a lot of equity waiting for their opportunity to strike,” Shepherd said.
More of those opportunities are coming by way of conversion—a shift that has required a complementary evolution of IHG’s expansion strategy.
For example, the company developed a room module for Holiday Inn Express that is built off site and then plugged into frames of existing office buildings, Shepherd explained. This saves on construction costs and makes the conversion process quicker.
Likewise, brands such as Hotel Indigo, which rely less on cookie-cutter brand standards and allow for more flexibility, are becoming a more prominent focus.
“It’s much easier to convert a building with a history—a building with a story—into a Hotel Indigo because the standards are more flexible than when you go to the midmarket brands,” said Martin Bowen, IHG’s associate VP of development in Germany.
Nearly half of all rooms IHG opened in Europe during 2011 were conversions or rebrandings, Shepherd said.
“The mix of our signings is shifting toward the conversions as the nonbranded hotels and the lesser branded hotel stock … they’re coming to us with our brands and our system delivery to make changes and survive and then thrive,” he said.
IHG also is willing to use its balance sheet to help develop or convert select hotels, Shepherd said.