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Strong Performance Predicted for Lodging Industry in 2014

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Look for transaction activity and even development to pick up across the board as investors seek out new opportunities in the global hospitality sector over the next 12 months according to EY’s “Global Hospitality Insights 2014,” released in mid-January.

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Following years of a slow and stubborn recovery and constrained capital budgets, the global hospitality sector witnessed a strong appetite for growth in 2013, a trend that is set to continue and pick up pace in 2014. “Global Hospitality Insights” follows 13 key trends expected to have major impacts on the hotel sector in 2014 and anticipates strengthening fundamentals providing a basis for solid financial performance in 2014.

Most importantly, hotel companies are finding greater access to a variety of debt and equity capital sources across both public and private platforms, making further expansion possible.

“In general, we expect 2014 to be a signature year for the hotel industry,” says Michael Fishbin, New York-based head of EY’s Global Hospitality practice. EY is anticipating more markets and industry segments will see rising average daily room rates and occupancy next year, which in turn will strengthen fundamentals and prompt higher per key prices for hotel acquisitions, especially in popular gateway cities, but also, increasingly, in secondary hotel markets.

With little new hotel development and few transactions in the last five years, investors globally have amassed an appetite—and capital—for new deals, leading to an increase in capital markets activity and heightened cross-border capital flows. Seeking high-quality investments in stable markets, Asian investors dominated global hotel transactions in 2013 and look set to repeat their high level of activity in 2014. Chinese and Singaporean investors combined are forecasted to account for over 60% of the total capital invested in hospitality outside Asia.

Among global investment opportunities, development is attracting attention with developers focused on serving current and projected customer demand in areas such as select service hotels, all inclusive-resorts and “alternative” lodging products, such as hostels.

And, while development activity is rising in many markets around the world, particularly gateway cities, developers operating in Asia and sub-Saharan Africa are among the primary beneficiaries of increased access to debt and equity capital. In sub-Saharan Africa, Ghana, Nigeria and coastal Tanzania, in addition to South Africa, all are witnessing significant hotel development. Yet, while hotel investors and operators are growing in confidence, long-standing risks—particularly in respect of widespread energy and transportation infrastructure problems—continue to temper their perspective of the region.

The growing worldwide spending of just two groups—millennials and Chinese travelers—is expected to drive a strongly performing global hospitality sector over the next several years.

Millennials’ influence over business travel spending—they are a third of the market and projected to be half of the market within the next five years—is driving hoteliers to modify services and amenities to appeal to their desire for value, innovation, immediacy, convenience and mobility.

“Everything from booking applications for your smartphone to room service ordered from in-room tablets and expanded fee-based loyalty programs designed to maximize the stay experience are being put on the table by hoteliers looking to capture the millennial dollar,” Fishbin adds.

Yet, Chinese leisure travelers may eclipse even the millennial spend. In 2012, according to the United Nations World Tourism Organization (UNWTO), Chinese tourists overtook Germans and Americans as the world’s biggest spenders with more than $100 billion spent on travel. Chinese tourists are the fastest growing segment of the market. As a result, look for more hotels to offer in-room amenities targeted at Chinese guests, such as slippers, Chinese teas, Chinese language newspapers and TV as well as adding Chinese food to restaurant menus.

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