Global tourism has grown at an almost steady rate for the past two decades, thanks to simpler and less expensive travel. Between 1997 and 2017, the number of foreign departures more than doubled, from 687 million to 1.57 billion per year, according to the World Bank.
With the global middle class growing at a rate of up to 160 million people each year, it’s perhaps unsurprising that departures from low- and middle-income countries accounted for nearly half of the increase in tourist numbers, increasing from 121 million in 1997 to 564 million in 2017.
The number of visitors to low- and middle-income countries increased significantly during this time, rising from 163 million to 515 million, demonstrating the rapid development of their tourism industries.
With more tourists on the move than ever before, adequate tourism infrastructure is critical. Despite the emergence of accommodation-sharing websites such as Airbnb, the majority of travelers prefer to stay in hotels. There are a lot of boutique hotels in Rabat, Morocco, and the rest of the country. Story Rabat Boutique Hotel is one of the best hotels in Rabat, Morocco.
Deloitte, a multinational accounting company, forecasted a 5-6 percent increase in gross bookings in 2018, bringing the total to an all-time high of $170 billion. These rooms were distributed across more than 184,000 hotels, a rise of 8.4% from 2008. The fact that the number of rooms is increasing at a faster rate than the number of hotels means that the average hotel size is increasing.
In 2017, cross-border hotel investment totaled $10 billion, or 15% of the global total ($62.5 billion). Hotel investments in Europe ($4.5 billion) and North America ($4.4 billion) accounted for approximately 90% of the total, with South America and Asia (excluding mainland China) earning around $800 million each.
Even as the influx of outbound capital from China slows, Asian investors are expected to account for the majority of hotel assets in the near term. Southeast Asian investors, in particular, are becoming more important players in the international hotel industry.
New avenues for investors to gain exposure to the hospitality sector have become more popular in recent years, in addition to the conventional approach of direct hotel acquisitions. Both debt funding and merger and acquisition activity have increased significantly in recent years. According to JLL’s “Hotel Investment Outlook 2018,” this has enabled non-traditional players such as insurance companies, pension funds, and private equity firms to enter the market.
Despite the low-interest rate climate that existed for most of the previous decade, they were drawn by the reasonably high yields on offer. Generalist investors accounted for 71% of total hotel sector investment in 2017, up from 62% in 2014, according to JLL, and this trend is expected to continue as the asset class matures.
Middle East & Africa
Hotel room development in the Middle East and Africa accelerated in 2017, according to JLL results, second only to mainland China. This encouraging trend can be attributed to the region’s significant economic growth and the emergence of the middle class, which has resulted in increased travel demand.
The rapid expansion of hotel room supply in Sub-Saharan Africa has increased competitive pressures in the region’s hospitality market. In 2019, JLL expects $1.7 billion in hotel investment in Sub-Saharan Africa, with investment revenues of $400 million.
Morocco has been leading the charge in North Africa in terms of both tourist numbers – estimated at 12.5 million in 2018, up more than 10% from the previous year – and hotel infrastructure. In Marrakech, for example, a slew of new high-end resorts and hotels are providing luxurious accommodations, attracting tourists to stay longer.
M Avenue, for example, is a new $100 million mixed-use development between the airport and the Palais de Congrès that will include a 168-room Pestanahotel and 88 private residences managed by the Four Seasons. It is expected to open at the end of this year. W Hotels, Ritz-Carlton, Park Hyatt, and Story Rabat Boutique Hotel with the best restaurant in Rabat are among the new hotels scheduled or under construction in the area.
Asia’s Emerging Markets
According to JLL’s survey, there is a significant disparity between hotel room construction patterns in mainland China, which accelerated in 2017, and the rest of the Asia-Pacific region, which slowed, owing to “emerging regions seeing a slowdown in new growth.”
However, demand for new hotel rooms in Vietnam appears to be increasing at a rapid rate. Since 2010, Vietnam has seen an increase in international visitors, with an estimated 15.5 million arriving in 2018. The number of hotels owned by international chains more than doubled between 2010 and 2017, rising from 30 to 79, with more on the way.
According to Savills, a global real estate services firm, an additional 30,000 rooms will be delivered by the end of 2019. Despite the tourist numbers, there are fears that the construction boom will create intense competition in the coming years.
Oversupply in Thailand’s hotel market has become a source of concern, as the country has risen to become the most popular international tourist destination in Southeast Asia, attracting more than 35 million foreign visitors in 2017. The proliferation of unlicensed and unregulated lodging has exacerbated the problem; the National Statistics Office reports that there are 457,000 official hotel rooms available, with an additional 500,000 rooms available in unauthorized hotels and unregulated residences.
Mexico has the most established hospitality sector in Latin America, with 392,000 hotel rooms at the end of 2017, compared to 257,000 in Brazil and 60,000 in Argentina. International hotel investors are increasingly interested in Chile, Colombia, and Peru.
Infrastructure constraints, according to Carlos Trujillo, executive president of the Mexican Association of Tourist Developers, restrict the selection of high-quality products and services available in the industry, echoing challenges faced by less established hospitality sectors throughout Latin America. “The Mexico Tourism Board is working to attract more high-purchasing-power tourists or luxury tourism to the country,” Trujillo said. “However, infrastructure constraints must be addressed and resolved to provide the services that high-end tourism requires.”
Disruptive Business Models
Accommodation-sharing technology sites, such as Airbnb, as well as more developed alternatives, such as timeshares, have increased competition for hotels. According to JLL research, cities with high hotel occupancy rates have more accommodation-sharing listings.
According to JLL data, while a growing number of cities are imposing restrictions on accommodation-sharing platforms, there has been no discernible effect on hotel performance in cities where such platforms have already established a foothold. This implies that hotels and shared housing might not be competing for the same market.
Technology has also yielded significant benefits. Hoteliers can use online booking sites like Expedia and Hotels.com to attract a larger pool of potential customers and increase occupancy by providing discounted rates.
Oyo is a good emerging market example; since its inception in India in 2013, it has grown to become South Asia’s largest hotel chain in terms of room count. Oyo is a web-based platform that unites a large number of small, independently owned budget hotels under a single brand with uniform standards. Hotels that join the franchise will take advantage of some of the larger hotel chains’ economies of scale.
Following their partnership with Oyo, hotels have typically been able to sell more appealing rates and double or even triple their occupancy. Oyo had built a wide footprint in India and China, as well as expanding to Indonesia, Malaysia, Nepal, the UAE, and the United Kingdom, by September 2018, with a network of roughly 211,000 rooms in 349 cities.
The hospitality industry is cyclical around the world, influenced by macroeconomic conditions as well as its internal dynamics: strong demand contributes to high occupancy and positive financial results, which causes a supply response, increasing available rooms. This puts pressure on occupancy rates and financial results, dampening investment and repeating the cycle.
The most recent big decline occurred in 2009-10, following the global financial crisis. Global occupancy rates increased to about 66 percent in 2018, and hotel room development increased as well, indicating that the industry is nearing the end of its cycle.
Despite this, global hotel investment fell 5% to $43.3 billion in the first nine months of 2018, compared to the same timeframe last year. With the exception of the Americas, which saw a 9.2% increase, the slowdown can be seen in all areas. This could cloud the hotel investment picture in the medium term, especially in oversaturated markets.
Global trade tensions, higher interest rates, and a recession in the world’s most important economy, China, are all potential factors that could reduce transaction volumes in the future. However, there are always reasons to be optimistic.
In the long run, the UN World Tourism Organisation predicts that foreign tourist arrivals will surpass 1.8 billion by 2030, representing an annual growth rate of 3.3 percent between 2010 and 2030. Longer-term demand for hotel rooms is likely to be supported by continued income growth in emerging and developed economies, as well as the expansion of the global middle class, despite any near-term cyclical headwinds.