The 28th Deloitte Hotel Investment Conference, which took place at The Dorchester last week, was subtitled ‘Opportunity out of uncertainty’ – a very apposite line as the conference kicked off amid much shaking of heads as attendees digested the fact that Donald Trump had just won the US presidential election.
After an introduction from Deloitte’s Nick van Marken, Roger Bootle of Capital Economics gave a typically entertaining and opinionated overview of the global economic landscape.
Starting in China, Bootle said the country’s economic growth “had to slow down – it couldn’t continue at the same rate, but it isn’t going to collapse. Growth has stabilised and perhaps even gone up slightly”.
As the audience pondered the ramifications of the election result in the US, Bootle said: “The essential fact to remember about the US is that it is still in the process of gradual recovery from the last recession. The US Federal budget balance is at four per cent, and set to stay at this figure for the near term. US interest rates are set to go up – we estimate they will reach 2.5 per cent by the end of 2018.”
“Trump’s win probably means interest rates will eventually end up higher than if Clinton had won. The economic powers of the President are limited – major changes in the US economy have not corresponded with political shifts. Trump has threatened the independence of the Fed, but he is so contrary, no one knows what he will actually do. A lot depends on who he appoints as advisors and how much he listens to them. I am not panic stricken and am reserving judgement,” he added.
Bootle’s predictions were more alarming when he set his sights on Europe, specifically the Euro zone: “Nearly 20 per cent of Italian bank loans are ‘non-performing’. Germany does not want to allow the Italians to bail out the banks, and many countries in Europe have a growing number of people who think they should leave the EU. There is a looming political crisis.”
And finally, turning his attention to domestic matters, Bootle said: “There is no sign yet of a Brexit-induced recession. The pound is at a very competitive level, it’s what the economy has needed for years. It’s a blessing. The implied squeeze on consumer real incomes makes it a worry for industries reliant on disposable income. The EU is fading in relative importance, the UK is set to do well in the coming years. We are close to a rise in UK interest rates, perhaps in 2017.”
Then Robin Rossmann, managing director of STR gave an overview of supply and performance: “US and European supply growth is relatively low, this has helped to keep occupancy flat, and group demand has driven REVPAR growth in Europe. The UK and Germany have the biggest supply pipelines in Europe. We forecast good occupancy growth across most European cities. In London, relentless supply growth has finally affected rate and occupancy. In the US, the top of the market is expected sometime towards the middle of 2017.”
Rossmann announced that Airbnb is now giving STR daily data from 10 cities worldwide. “Airbnb is accounting for an average of around 10 per cent of the login market across these cities,” he said.
A session on mergers and acquistions, moderated by van Marken, featured Ghaurav Bhushan, CDO of Accor Hotels, and Carlton Ervin, CDO of Marriott International. Van Marken kicked the session off against the background of a Chinese “shopping trip” – with China spending around $25 billion in the hotel sector in three years. “There is relentless pressure in China to take money out of the country so this trend will continue for some time,” said van Marken.
Asked about the Fairmont purchase, Bhushan said: “FRHI deal was a good fit. It gave Accor a global presence in the luxury space, and a foothold in the US.”
Ervin said that after a long period when Marriott was pretty cool on the prospect of buying Starwood, “the benefits of being big eventually caused us to go ahead.”
Post Starwood, “the pace of adding new brands will now slow. Now we will look to enhance the loyalty of our guests. We’ll also look to acquisitions such as Accor’s Onefinestay deal, things that will touch our guests in other ways.”
Bhushan said Accor is focused on the lifestyle segment, where there is “a lot of scope for growth”. “25hours is a fantastic brand, and we have the right to acquire the entire company in time. Lifestyle hotels currently make up one per cent of the hotel sector but 10 per cent of the pipeline. Jo & Joe is a very different concept – it’s extremely innovative. We want to reinvent the hostel space, and to bring in a strong focus on F&B. There is likely to be a lot of consolidation in the hostel sector.”
The View from the Top session featured Mark Hoplamazian, president and CEO of Hyatt; and James Riley, CEO of Mandarin Oriental Group. Hoplamazian said Hyatt’s position is “relatively unchanged” by recent industry consolidation. “Our business is not particularly scale sensitive. The large players are increasingly franchisors rather than managers. Economics of scale don’t necessarily translate to management.”
A panel of US operators inevitably debated the likely consequence of Trump’s presidency. Moderator Adam Heisenberg of Deloitte said Trump had “slammed through everything that is normal. He’s not a career politician. I’m worried that Trump is going to try to run the country the way he has run his businesses.”
James Bermingham of Montage Hotels & resort said the result was “shocking, surprising and scary.” “The outcome is less about Trump and more about the anti-establishment sentiment in the country.”
Scott Woroch, managing director of SH Group, said: “I feel an incredible sense of dislocation and I worry about the international view of Trump and, by extension, America. I think the result could have a potentially negative effect on international travel in to the US, particularly from areas such as the Middle East.”
Craig Reid, president and CEO of Auberge Resorts Collection, then added a more sanguine view to end the session on a more upbeat note: “From an economic standpoint there won’t be a great change. Across the US cities are reinventing themselves, and resort destinations are being created.”