The next crash: Why the global hotel boom signals probable disaster ahead

Thor Bjorgolfsson
InterContinental Hotels Group plans to increase its 4,700 properties by 1,200 (Source: Getty)
It's seven years since the last crash. We know there will be another one soon but where will it happen? Looking at the cranes in the sky has always been a reliable indicator. I remember surveying Reykjavik’s skyline in 2007 and wondering who was going to live in the fancy apartments being erected. Now they’re well-occupied and charging impressive rents but there were painful years in between, as I know too well.

Could it happen again? I’m not too concerned about the housing market this time but, as you rest in your holiday hideaways, watch what’s happening to the global supply of branded hotel rooms.

Seemingly everywhere outside the saturated US market, hotels are booming, with most major chains in the midst of startling expansion plans.

According to figures from the Telegraph, Hilton Worldwide, which enjoyed its best year for European openings in 2014 with 7,700 new rooms, is planning to add another 260 hotels to its portfolio of 361 in Europe, the Middle East and Africa, having opened a hotel there every other week for the last seven years. Starwood Hotels and Resorts last year signed its highest number of European new hotel agreements for a decade. Marriott International is expecting to double its number of European hotel rooms to 150,000 by 2020. InterContinental Hotels Group plans to increase its 4,700 properties by 1,200, while Jumeirah Group, operator of Dubai’s Burj al Arab, plans to nearly quintuple its current 22 hotels to 105 by 2023.

What’s driving this? The globalisation of tourism is certainly a trend to be taken seriously, with the World Tourism Organization forecasting that the number of international tourist arrivals will rise from 940m in 2010 to 1.8bn by 2030.

Dubai, host of the 2020 World Expo, is looking to almost double its number of hotel rooms from 80,000 to about 150,000 by 2022. Hotel markets in China, India, Turkey and even Russia are also apparently under-supplied.

Hoteliers argue that some of the expansion simply involves bringing existing venues under major brands through management contracts, mirroring the trend in the US. There, two-thirds of hotel rooms are controlled by major brands, compared to one-third in Europe.

It’s also probably true that tourism’s increasingly global nature will drive a move from independent hotels and small chains to recognised international brands.

Yet I also detect that most worrying of signs: a confidence, maybe even complacency, that the world economy is over the worst and things can only get better.

The losers may not be the hotel groups themselves, since in many cases they don’t own or finance the buildings, but simply run them on management contracts. The investors are mostly real estate investment trusts and other property funds.

Could these characters become the equivalent of the bogeymen who were blamed when everything went wrong in 2008? I don’t see anything of that scale happening just yet but the warnings are there. Happy holidays.

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