Global hotel markets to feel pressure in 2009, says E&Y

Global hotel markets are expected to continue to feel pressure from contracting economies and reduced leisure and business travel across much of the world in 2009. However, despite declines across most major regions of the world in 2008, operating performance in the global hotel industry remained profitable as hoteliers focused on controlling costs and preserving the bottom line, according to a report released by Ernst & Young.

'There is little doubt that most markets in the current economic climate are challenging at best and growth will be hard to come by for most operators,' said Michael Fishbin, National Director of Hospitality Services at E&Y. 'As a result, this year we will see hotel operators continue to focus more of their energies on cost reduction, improving operating efficiencies in their hotels, reaching out to guests via enhanced Internet communication and strengthening their brands through an emphasis on green principles in activities related to both development and operations,' he added.

Despite low mortgage delinquency rates, hotel values dropped in 2008 and will continue to drop in 2009 as the economic slowdown takes hold. Meanwhile, cash-rich buyers are waiting to make deals once acquisition pricing is attractive. A recent Ernst & Young survey of US real estate investors revealed that 60% intended to take advantage of fire-sale prices and buy commercial real estate. With $400 bn already raised by private equity firms for distressed debt investment and a first wave of bankruptcy judgments expected this year, the transaction floodgates should open before the year is out, E&Y said.

E&Y also noted that there is about $19 bn of loans in commercial mortgage-backed securities pools set to mature this year and very few new loans available at present. As such, hotel borrowers will be seeking loan modifications and exploring alternative strategies to recapitalise assets this year.