Positive outlook for the hospitality industry
By Albian Albrahimi, Lecturer in Finance at Les Roches Global Hospitality
The hotel industry's recovery is accelerating, overcoming the crisis. In the first half of 2021, the stocks of the major hotel groups have recovered and outgrown the indexes. And the organizations are investing massively in new international offerings. For example, the Hilton group has announced the construction of 160,000 rooms over the next few years, while new entrants are benefiting from the support of the largest financial institutions.
In this logic, rooms and apartments are complementary. The major hotel groups are transforming themselves and have initiated the movement. Because it is essential for operators to have a wide range of accommodation solutions, not just rooms. In fact, Marriott's brand architecture includes 31 brands. Accor's brand architecture includes 37 brands.
Since 2018 Marriott started to build apartment hotels. To my knowledge they were the 1st hotel company that decided to compete with Airbnb. Since then, the group has been followed also by the other companies. The apartment hotels doesn't threaten the hotel business because the main customers are coming to hotels on the short term basis and for these apartment rentals it's more for longer periods. At the end of the day the hotel chains just managed to get more market share.
Still, the main investments go to the traditional hotel rooms. Last year Hilton announced they're going to build around 800 properties with more than 160,000 rooms over the next few years. The chain has been growing at the rate of 50 to 100,000 rooms every year. They are making investments efforts that pay off.
From an investor's perspective, the return after the COVID for the S&P 1500 for the hotel, restaurants & leisure industry index has been growing by more than 50% over 9 months. It has been growing faster than the S&P. After one and half year of significant slowdown or even closure, the branch absorbs the shock quickly. Further, the consensus is positive. We can have fair expectations for the future. A good reason is that while a part of the investment will go to the benefit of apartment-hotels and suites, respondents of the study mentioned above believe they will have an attractive yield on hotel operations.
Finally, let us mention that private equity funds are also in the loop. Sonder a new platform of serviced apartments, 100% digitally managed from mobile phone apps for booking, self check-in, 24/7 support including room cleaning and services support. It is a direct response to Airbnb, but services included. The company has raised over $560 million in venture capital, including a $200 million round led by Fidelity, WestCap and Inovia Capital. The transformation of an industry is on its way.