Excerpt from CoStar

Brands Are Being Hybridized To Suit New Investor and Guest Requirements

The hotel industry continues to recover, but 2023 might bring more stress on consumers and hotel debt, and squashed in the middle are midscale brands.

The hotel industry has no shortage of brands, and while the segments at either end of the spectrum are top of mind for investors and guests, the midscale segment is looking to take its next big leap.

The survival of mainstream midscale brands depends on fine-tuning brand relevancy to the new guest, said David Anderson, divisional president for Europe, Middle East and Africa at Aimbridge Hospitality EMEA during Alvarez & Marsal’s European Hospitality Investment Conference.

Anderson and his fellow panelists in the session titled “Evolution of Mainstream Hospitality Development” represent 88 different hotel brands. Many of these are midscale brands that are legacy members of their parent companies’ portfolios.

Willemijn Geels, vice president of development for Europe at IHG Hotels & Resorts, said 35% of the hotels she has signed in her region have been in the midscale segment.

“There is big demand for midscale with families, such as for Holiday Inn, Voco and extended stay. These brands are very resilient, and they have proven again that it is an interesting model both from operational and investment viewpoints,” she said.

Geels added some Holiday Inn hotels are gaining more resort and leisure offerings, and the tweaked Holiday Inn Express & Suites model is debuting in more markets.

Investors need to be on board, too, said Camil Yazbeck, senior vice president and head of development for Europe at Accor.

“Office has gone, but what is the profile of the investor? Extended stay stabilizes risk and gives a base occupancy," Yazbeck said. “We can do branded residential, and we now own [food and beverage] concepts, which a few years ago was a no-no in hotel firms. With experiential hotel brands, this gives you the ability to fine-tune offerings and depress cap rates for investors."

Yazbeck said midscale hotels have their place if owners and trends within a market are fully understood. He added brands are becoming more hybridized to favor specific demand generators in a market.

“You need flexibility within brands for this. I do not see the pipeline becoming diluted because of this, and Europe is especially ripe for this,” he said.

Tim Walton, regional vice president of international hotel development for Western Europe at Marriott International, said as the market evolves so do contractual terms for hotel management agreements.

“For the most part, [HMAs] are easier and more flexible,” he said.

In Europe, Marriott has only 6% market share of branded hotels as opposed to 22% in the U.S., which means there is room for growth, Walton said.

“Ninety percent of hotels in Italy are unbranded, and some for good reason. Everyone is after the same deals, and deal terms have become more flexible,” he said.

Most hotel firms have pipelines in Europe that are broadly 50% new-build properties and 50% conversions of existing properties, with conversions likely to grow in share a little.

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