Despite contracts being in short supply according to new survey, on hotel management agreements.

Jones Lang LaSalle Hotels has discovered a surprising trend in its latest study on management agreements proving that hotel operator fees are remaining strong, even though the supply for contracts remains weak. Mark Wynne Smith, European CEO, Jones Lang LaSalle Hotels says: "The survey findings have gone against the supply and demand model. 

One would expect operator fees to perhaps diminish with the growing competition for contracts but the findings of the survey have proved otherwise. Operators appear to have a common understanding of the value that they bring to hotel owners and they appear unwilling to compromise in the face of greater competition for contracts."

The research also demonstrates that the balance of power has tipped more towards the direction of hotel owners, showing that the development of more sophisticated management contracts is giving the owners more control of their assets. Owners are prepared to pay good fees for successful performance but they are also seeking to punish operators for under performance. Mark Wynne Smith added: "This is good news for the hotel companies and their future earnings but equally good news for the owners as well."

As well as incentive fees, which reward operators according to the profit they achieve, owners are using operator guarantees and performance clauses to control their hotels' performance - these are common in America and Europe and becoming increasingly popular in Asia Pacific.

Arthur De Haast, Global CEO, Jones Lang LaSalle Hotels said: "Across the globe, we are seeing greater uniformity in management agreements term length of around 12-15 years, and renewal options of one or two options of five years.  However, incentive fees vary significantly from property to property and region to region."

Another global trend revealed in the survey is the establishment of FF&E (Furniture, Fixtures and Equipment) Reserves as a means of funding capital expenditure. There is also an increasing prevalence in vacant possession clauses, which allow an owner to terminate and pay compensation to an operator on the sale of their hotel.  This is common in Asia Pacific.