High-end franchising to increase by 50% over next five years

More than 50% of all new four-star hotel deals taking place over the next five years will be under franchise rather than traditional management agreements with branded operators.

This is according to commercial property consultant firm CBRE, which said that an increase in high-end franchising is a result of owners wishing to retain operational control to maximise returns and hotel companies continuing to focus on asset-light strategies and increase brand distribution across Europe.

It said that the majority of key European countries are currently experiencing solid growth in revenues and profitability, claiming opportunistic investors appear to have confidence in continued performance growth and their ability to convert this into increased returns on investment.

As a result, claims CBRE, there is a greater appetite for unencumbered assets in comparison with those under a less flexible management agreement.

Owen Pritchard, head of development of Europe, Middle East and Asia at CBRE said: “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.

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

“The predominance of the asset light strategy from major hotel brands combined with pressure to increase distribution of their portfolio is providing the momentum for the franchise model. There is also an increasing preference from owners to have operational control and an increase in the size and capabilities of third party operators.”

CBRE said that in London alone there are currently 3,705 rooms scheduled to open in the next three years under a franchise agreement, while there are 4,479 scheduled to open across the regions.