Hospitality sector showing signs of growth despite uncertain economy

Friday, March 22, 2013

Hospitality sector showing signs of growth despite uncertain economy

As economists and business owners continue to monitor the global financial situation, many organizations are tentatively beginning to reconsider their business travel management strategies. With gradual signs of economic recovery observed in North America, some companies are choosing to leverage growing consumer and corporate confidence and are increasing the amount of trips taken by their executives. As demand for corporate travel increases, major players in the hospitality industry are seeing the effects in the form of improved profit margins and a more diverse customer base. While frequent business travelers often choose to stay in alternatives to corporate suites at chain hotels, such as serviced apartments and corporate housing, a buoyant tourism market is driving up the average nightly rate at hotels in many regions.

Incremental growth
According to a recent survey, hotel rates rose by an average of 3 percent globally during 2012, indicating that the hospitality sector is poised to take advantage of the increased demand for hotel rooms in both the tourism and corporate markets. Some markets yielded better returns than others, most notably the Caribbean, which saw rates rise by 6 percent. North American hotels also reported strong gains, with average rates increasing by 5 percent last year. Rates at hotels in the Pacific region rose by 4 percent, while prices in the Asian and Latin American markets increased by 2 percent and 1 percent, respectively.

While the hospitality sectors in these areas reported significant gains throughout 2012, other regions continued to struggle with the prolonged effects of the global economic crisis. Hotels in Europe failed to match rate increases observed around the world, partly due to the ongoing uncertainty surrounding the financial climate in the eurozone.

"Europe's hoteliers aren't immune from the region's economic problems, and they weren't able to keep pace with a recovering global market in 2012," David Roche, president of Expedia's Global Lodging Group. "Much of the focus of the hospitality industry is now moving east, where the rate of increase is the highest and new infrastructure is helping to drive travel patterns. The Asia-Pacific region added twice as many new hotel rooms as Europe in 2012 and will account for 40 percent of the world's new builds in 2013."

Niche markets
Emerging markets that have demonstrated economic resilience in light of the global financial crisis, like Brazil, are expected to increase their overall hotel inventory in the near future, due to impending events such as the FIFA World Cup in 2014 and the Summer Olympics in 2016. According to USA Today, construction of new accommodations in Brazil is reaching unforeseen levels, with 200 hotels currently being built and an additional 170 facilities projected to open within the next three years.

Heightened interest in regions like Brazil could potentially mean a more competitive market for consumers. As more chain hotels open, average nightly rates may be subject to increased scrutiny, which has the potential to lead to savings for guests. However, the heightened demand for hospitality services in the country also places hoteliers in an enviable position when determining suitable pricing policies.

Brazil's strong economic position and increasingly international appeal are expected to drive demand for accommodation even higher in the coming years. While this may be welcome news for the country's economy, it could prove to be a challenge for organizations conducting business in Latin America. With heightened demand comes higher rates, something that many companies will be actively trying to avoid in light of the continued economic climate in the U.S.

As such, while chain hotels may enjoy a prosperous future, demand for alternatives is likely to increase. Short term lets, furnished extended stay units and corporate apartments offer today's executives unparalleled return on investment and may prove to be a viable option in an increasingly uncertain economy.