Strong investment returns to spark surge in hotel franchises: report

Europe’s buoyant hotel market is likely to spark a boom in high-end hotel franchising over the next five years, with the prospect of solid returns likely to tempt opportunistic investors.

That is the conclusion of a new report by commercial real estate advisor CBRE, which anticipates more than half of new four-star full service hotel deals taking place over the next five years to be under a franchise model.

Based on analysis of room profitability (RevPAR) and yields, the report concludes that owners will favour franchising as it allows them to retain operational control and maximise returns.Meanwhile, hotel companies are expected to continue to pursue the same model as it facilitates asset light strategies and increased brand distribution.

“We are going to see more and hotel companies offering franchises for their full service four-star brands as well as continue to push their limited service franchise brands,” said Owen Pritchard, head of development EMEA at CBRE.

“We understand from Hilton that franchises in Europe over the last two years accounted for nearly 57 per cent of total openings, whilst the pipeline (to the end of May 2015) shows this rising to just over 61 per cent of the total planned openings (in rooms), including conversions.”

The sector has been quick to capitalise on the post-recession boom in hotel demand as business and leisure travel continues to increase, with franchise models proving increasingly popular. In London alone, there are currently 3,705 rooms scheduled to open in the next three years under a franchise agreement and 4,479 scheduled to open in regional UK.