Big hotel chains and unbranded-hotel owners find they need each other
Independent hotel operators and giant global chains are increasingly linking up in franchise agreements as high-interest rates have slammed the hospitality industry, slowing down new hotel construction.
For big chains, new franchise agreements from conversions keep investors happy by opening new hotels in the short term. Meanwhile, independent, unbranded hotels like switching to franchise agreements because it gives them greater access to potential bookings and cheaper financing from lenders."Historically, global conversions have been 10% to 20% of the rooms entering the system, today it is probably closer to 40%," said Patrick Scholes, Truist equity analyst.
For U.S.-based Marriott International (MAR.O), opens new tab, conversions in 2023 accounted for 40% of organic room signings, double the 20% rate a year earlier. Half of France-based Accor's hotel openings last year were through conversions. That matches trends across the industry."In a climate where the debt markets for new construction are somewhat constricted, the importance of conversions is elevated," Marriott’s CEO Anthony Capuano said on an earnings call earlier this year.
Hotel operators benefited from the surge in "revenge travel" as the pandemic receded. However, the economic rebound also brought higher interest rates - making life more difficult for smaller operators who rely on capital borrowing to fund their operations.
Roughly 1,980 hotels opened in 2023, down from 2,730 in 2019, according to hotel development intelligence firm Lodging Econometrics."Access to hotel financing, especially in South America, is currently limited since many hotels faced difficulties in meeting their debts during the pandemic," said Fernanda L'Hopital, South America director of consulting and valuation at hospitality consulting firm HVS.
