New Strategies, but No Growth on Tap for Hospitality Sector in 2009

With the economy in the tank and the credit market still frozen, it’s more likely than not that the hotel market–like most real estate sectors–will not recover this year. Growth is not on the current list of hotel industry trends, according to Ernst & Young L.L.P.’s U.S. 2009 Lodging Report, but setting the stage for long-term success is. Profits are destined to elude the hotel industry this year. Having to contend with a dearth of financing and the impending maturing of $19 billion in commercial mortgage-backed loans, hotel owners will be forced to focus on restructuring existing loans, and they’ll have to get creative in the pursuit of other options for refinancing. Additionally, property values will continue to sink, thanks to the poor state of the economy. However, for the small group of entities that has ready access to money–like the private equity contingent, which has already collected $400 billion for investment in distressed properties–transaction volume will pick up by year’s end as price tags decline. And when those investors prepare to plunk down the cash, they will expect greater clarity for a more accurate determination of values, and they will probably turn an eye beyond U.S. borders toward cities in such areas as Asia Pacific, the Middle East, North Africa and Latin America, where economies are expanding and lodging accommodations are limited. Although most hotel companies will not play the buying game in 2009, they will hardly sit idle. Instead of mining the market for acquisitions, they will capitalize on the economic downturn by taking the opportunity to focus more on efficiencies and the curtailing of costs. And there’s other work to be done. Noting that one-third of travelers turn to online reviews when selecting lodging, E&Y suggests that hotel operators expand their properties’ online visibility. It is not within sight, but when the tide does turn, the hotel sector will be in for change. The inclusion of hotels within mixed-use urban developments will remain popular, but the lodging facilities will more frequently be surrounded by office space and apartment units, as opposed to coupling with retail or taking the form of condo-hotels. Also, sustainable development will increasingly take center stage. As the focus on green living increases around the world, LEED certification could become all the rage.