European hotel executives fear bankruptcies.
Monday, 16th March 2009
Source : DLA Piper
Four in ten hotel executives anticipate that more than five chains will go into administration in the next year.

A survey of 261 European hotel executives has revealed a worse-than-expected outlook for the hospitality industry with 79 percent of respondents predicting hotel chain bankruptcies in the next twelve months.

According to the DLA Piper 2009 Europe Hospitality Outlook Report – launched today at the International Hotel Investment Forum (IHIF) – European hospitality executives are less optimistic about the health of their industry than their US counterparts. Only 39 percent of European hotel executives expect the industry to recover in 2010, compared to 59 percent of US hotel executives. Over half of European executives (52 percent) do not expect a recovery until 2011 .

Respondents cited two main reasons for their level of pessimism – the inability to raise capital in the current market (43 percent) and the struggling European economy (33 percent).

However, for well-capitalised investors there are opportunities in the current market - eight out of ten respondents recognise the 'good' buying opportunities, with the economy/budget hotel sector representing the most attractive investment opportunity. The majority of respondents – 71 percent – also regard investment in sustainable hotel development as a long-term trend.

"Given the current economic climate it comes as no surprise that the majority of European hotel executives are decidedly bearish about the health of industry," said Karen Friebe, global co-chair of DLA Piper's Hospitality and Leisure practice.

"The survey shows that the sector is alive to the changes in economic conditions. There will always be winners and losers. The winners are taking advantage by asking us to help with renegotiating contracts, even leases and recession proofing their businesses. They are reviewing their corporate structures to make them leaner and fitter. The losers are doing nothing.

"The survey shows that the pessimism in the industry is in part due to concerns over raising capital and reviewing existing borrowing. We see this key area of restructuring the stakeholder position becoming dominant in the industry in the third and fourth quarters. Non-disturbance agreements will be an important factor in these negotiations," added Friebe.

Jonathan Worsley, one of the organisers and founders of the International Hotel Investment Forum and an advisor to the World Travel & Tourism Council added: "There can be no doubt economic conditions are putting significant pressure on all investment and development decisions. But opportunities remain for well-capitalised investors and it is interesting to note the on-going interest in sustainable hotel development, despite the apparent desire to cut costs during the recession."

The DLA Piper research yielded a number of other interesting conclusions:

  • 84 percent of respondents describe their 12-month outlook for the European hotel industry as 'bearish'.
  • 81 percent expected hotel assets to go down in the next 12 months.
  • A quarter of respondents (26 percent) believe the EU Parliament's potential removal of an EU country's right to opt-out from the Working Time Directive - which caps an employee's working week to 48 hours – will have a negative impact on the hospitality industry.
  • 70 percent of respondents are witnessing a significant reduction in business travel.
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