Branded hotels' global expansion picks up pace

KUALA LUMPUR (May 4): Branded hotel companies pursuing assets in new locations will reach a new focus and intensity in 2012, according to hotel investment, advisory and asset management services provider Jones Lang LaSalle Hotels (JLL Hotels).

While Brazil, Russia, India and China (known as the Bric nations) remain a key focus of international growth, other high growth markets are offering an expanding customer base and the opportunity for branded international expansion.

Indonesia, Malaysia, Nigeria, Turkey and Vietnam are among countries that offer rapid economic expansion and growth. These nations are showing well-developed commercial real estate, strengthening domestic corporate base, stable financial markets that now provide a foundation for growth and leisure and corporate travel, JLL Hotels said in a recent statement.

"Hotels in the United States and Western Europe are heavily weighted towards global brands, with nearly 70% of all properties bearing globally recognised names. The situation in much of the rest of the world is almost the inverse in the aggregate," said Clay Dickinson, executive vice-president for JLL Hotels and leader of the firm's Strategic Advisory and Asset Management division, in Latin America.

"The need to be in markets in which their customers are increasingly travelling, limited competition from local hotel brands and the potential to capitalise on the rapidly growing middle class incentivises international companies to continue expanding abroad, ideally until the size of their presence abroad more closely reflects that in their home markets."

Global growth in emerging markets will be facilitated by the availability of capital and a tolerance for risk and while mature markets remain an opportune location for investments, there is limited opportunity for growth.

"The demand for hotel development in mature markets, like the US, is expected to be about 2% in 2012, limiting growth for many major brands," said Jalil Mekouar, Americas COO and managing director of Strategic Advisory & Asset Management for JLL Hotels.

"We expect hotel brands to deploy international expansion and bring investment opportunities to previously unconventional markets."

However, the consultancy warned that while the future of high growth markets outside the US looks appealing, successful expansion and integration in these countries can be difficult.

"Most global brands have come to prefer an ‘asset light' model based primarily on growth via management contracts or franchising, which is often incompatible with the demands of high growth markets — both from a practical and investor requirement standpoint," said Mekouar.

"In many of these countries there is still an expectation that the brands will invest in new hotel projects."

Increasingly, they are demanding the brands "invest" in expanding into the country — be that in the assets to be developed, in key money for management contracts, or in building a more robust support infrastructure to support the value of their brands.

"Brands have generally paced the adoption of this viewpoint and are selectively making such investments," added Dickinson.

To succeed, brands will need to work with local partners in attractive markets which offer key gateway cities, economies of scale or both. Those local partners can often bargain from a position of strength when it comes to dictating the terms.