IHG eyes 100-plus hotel expansion in Russia and Germany

InterContinental Hotels Group plans to focus its expansion drive on Russia and Germany, VP of European development Philippe Bijaoui tells in an interview with PropertyEU.

In his first interview since he took on the role in November 2012, Bijaoui says the hotel group is focusing on three 'core markets' following the addition of 7,000 new rooms to its European portfolio last year.

IHG is now on a mission to have 100 hotels in Russia and the CIS region, as well as an additional 70 hotels in Germany, open or in the pipeline by 2020.

PropertyEU: Where do you see the best development opportunities in Europe?
Bijaoui: European hotel markets vary so much from country to country. However, at IHG, we have decided to focus largely on three ‘core’ markets: the UK/Ireland, Germany and Russia/CIS region. We’ve been active in the UK for a long time and are the number one midscale operator there. It’s a popular, developed hotel market.

In Russia, we think there’s a lot of scope for hotel development. For example, in Moscow, there are just 9,000 hotel rooms - that’s a tenth of the size of the London market. Our goal is to have 100 hotels open or in the pipeline in Russia and the CIS region by 2020. Today, we have 18 hotels there.

We’ve done extensive local research and there’s a huge gap in the market that Holiday Inn and Holiday Inn Express can fill. Russians are driven by quality and consistency. We also know Russian and CIS business travellers favour international brands and choose hotels based on location, comfort and value for money. We believe demand will continue to grow as domestic and international travel increases and greater numbers of business people and tourists travel to Russia and CIS from overseas.

In March 2013, IHG signed a franchise multi development agreement with Russia’s Regional Hotel Chain to develop 15 new Holiday Inn Express hotels in Russia by 2020. When opened, they will add 2,250 rooms to our portfolio there, effectively doubling it. Some hotels will be in major cities such as Moscow and St. Petersburg but also in smaller regional cities such as Chelyabinsk. The deal marks the debut of the Holiday Inn Express brand in Russia and the CIS region.

In Germany, we want to add an additional 70 hotels to our portfolio or pipeline by 2020, both in the ‘Big Six’ markets, including Munich and Frankfurt, but also in smaller regional cities. This will double our existing portfolio. Germany is an attractive market to us because of its very resilient economy. We’re also seeing good growth in the boutique segment. We’re one of the first companies to bring a boutique hotel offering to Germany with Hotel Indigo and it’s proving very popular. In 2012 we opened two hotels in Berlin; Hotel Indigo Düsseldorf is on track to open later this year and we have another in the pipeline for Hamburg.

All this is not to say that we are avoiding other European markets. To the contrary, we are very active across Europe but we see the best growth opportunities in these three markets.

PropertyEU: how many new hotels do you have in the pipeline?
Bijaoui: Last year, we opened 39 new hotels in Europe and signed agreements to open a further 48 hotels. Of these 48, around 55% of them are scheduled to open this year or early next year. The others are longer-term projects. Our European pipeline, at the end of 2012, stood at 91 hotels - or 15,184 rooms.

PropertyEU: Do you prefer to take over existing hotels and rebrand them or to develop your own hotels?
Bijaoui: We aim to take over, for conversion, between 3,000 and 4,000 new rooms each year. We also develop our own. It really depends on each country and which hotels are for sale. Sometimes, there is a lot on the market at once, but at other times there is not much for sale. However, in certain markets that are struggling financially, such as Spain, Italy and parts of Eastern Europe, it is incredibly hard to get financing for development. Subsequently, we are more likely to acquire existing hotels there. When we develop hotels, we like to enter into a joint venture with a local partner. Otherwise, it’s a very steep learning curve for us! A local player will know the market intricately and will have the know-how to develop in the area.

PropertyEU: What are the biggest challenges the hotel sector faces today?
Bijaoui: Other than financing, the industry’s biggest challenge is the lack of confidence in the global economy, which is affecting everyone as well as investment in general.

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