A new report paints a promising picture of the hospitality industry in 2015, while also identifying key areas hoteliers must focus on to rise above the competition.
According to EY's "Global hospitality insights: Top thoughts for 2015," the hospitality industry is currently a strong factor in economic growth at the local, regional and global level. And as investors transcend boundaries and cross borders to target secondary markets, the industry figures to soar even higher in 2015.
Today's travel and tourism industry provides 266 million jobs and accounts for 9.5 percent of gross domestic product (GDP) globally, per the report. In 2015, the travel and tourism sector is expected to grow by 3.9 percent. That includes a number of new hotels (the industry currently boasts a pipeline of about 1.3 million guestrooms).
"We expect the hospitality industry to experience significant growth, development and brand expansion in the coming year," said Michael Fishbin, EY's Global Hospitality & Leisure Leader. "Despite some significant headwinds - such as geopolitical instability, new health concerns and inconsistent economic growth - the global industry is thriving and optimism prevails."
There's a key shift happening in the global hospitality industry, the report notes. Major destinations such as New York City, Paris and London used to dominate hotel booking share, but travelers are beginning to stretch their wings and yearn for under-the-radar, rising destinations. This has led buyers to rethink their priorities and hotel companies to expand in secondary markets.
According to the report, cross-border investment rose by about 137 percent from 2013 to 2014, with foreign buyers looking at U.S. destinations such as Phoenix, Atlanta, Houston and Orlando. This surge of foreign investment only figures to continue in 2015, as investors from countries such as Canada, China, Malaysia, Japan, Singapore and the Middle East are breathing more life into the U.S. hospitality industry.
The same could be said about U.S. investors looking at foreign secondary markets.
"When we look at the industry globally, we are seeing expansion across the board - both in traditional areas of high demand and, now, in many secondary markets," said Cameron Cartmell, EY's Hospitality & Leisure Leader for Europe, the Middle East, India and Africa (EMEIA), via a press release. "From Europe and the Middle East to the Americas and Africa, we expect to see impressive pockets of new growth and development in 2015."
In fact, cross-border investment has been a major factor in merger and acquisition (M&A) activity in recent years. Global hospitality and leisure transactions increased by 8 percent, year-on-year (through the third quarter of 2014). Cross-border capital accounted for 41.2 percent of global hotel investments between January 2014 and October 2014 (compared to 34.7 percent in 2013).
As you can imagine, the ever-important Asian market is leading the charge. Asian investors-primarily those in China, Hong Kong, Japan and Singapore-represented 43.2 percent of M&A transactions from January 2014 to October 2014, flooding North America, Europe and Australia with capital.
"Currently, the top three global hotel markets for Asian investment are Manhattan, Hawaii and London, representing 48.5% of total Asian hotel investment globally through October 2014," Fishbin said.
But just because the hospitality industry is trending upwards doesn't mean it's going to be easy pickings for hoteliers. The industry has also become more complicated, with new concepts and demands stemming from some key generations.
If you haven't heard of the millennial generation's impact on the industry by now, chances are you will many times over the next few years. Numerous studies and reports have highlighted millennials' impact in the last year or so.
EY has found that millennials-who are projected to drive the industry again in 2015-are generally more cost-conscious travelers than previous generations and are experiential travelers. Smart hoteliers are offering innovative and alternative lodging products as a result, replacing large guestrooms and full-service restaurants with smaller rooms, grab-and-go food and pay-as-you-go amenities. Free services such as Wi-Fi (perhaps the most valued amenity by millennials today), iPads and bicycles are also being offered to cater to the generation.
This morphing of the market primarily springs from Europe and Asia, but has now emerged in the U.S., where both high-cost destinations (New York, L.A. and Miami) and culturally-focused destinations (Nashville, New Orleans and Portland) are attracting millennials.
"Today's emerging traveler - millennials and millennial-minded guests - is not looking for their parents' hotels and experiences and they are more cost-conscious and experience-focused than ever before, whether traveling for business or leisure," said Mark Lunt, EY's US Southeast, Latin America and Caribbean hospitality leader.
The EY report also notes that hospitality companies need to be conscious of tax issues more than ever when developing an investment strategy. Escalating tax enforcement initiatives and a rise in indirect taxes can't be ignored.
"The entire hospitality industry must carefully consider the tax consequences of where capital originates, where investment vehicles are located and where capital is deployed," said John Cullins, EY's Americas real estate, hospitality & construction tax leader. "Given the heightened tax scrutiny that investor groups are subject to, they also must properly manage cross-border tax implications that could adversely affect profitability."
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