Viewpoint: rooms for growth

Franchising is growing fast, with one in four rooms operating under a franchise since 2000 and banks betting on their future, says David Bailey

Since 2000 there have been 1,714 hotels developed with 157,030 rooms. If we exclude Premier Inn and Travelodge from this, on account of their primarily leasehold model whereby they pay a rental to the owners of their hotels, we are left with 1,253 new hotels with 113,079 rooms. Of these, those operated under some form of franchise account for one in four rooms.

One brand owner that has embraced the franchising model with great enthusiasm is Hilton Worldwide. Franchising has powered its UK growth. In early 2008 there were no DoubleTree by Hilton or Hampton by Hilton hotels. Today there are 22 Doubletree by Hilton hotels with 4,522 rooms. Of these, 16 hotels with 2,540 rooms (56%) are operated under a franchise agreement*. The Hampton by Hilton brand now numbers 12 hotels with 1,670 rooms, of which nine hotels with 1,287 rooms (77%) are franchised*.

Hilton Worldwide are not the only ones. The Intercontinental Hotels Group, an early adopter of the franchising model for its Holiday Inn Express budget brand, announced a new 452-room, five-star InterContinental hotel for the O2 in London. This hotel is to be operated under a franchise agreement, meaning that franchising now spans the full spectrum of hotel quality.

Bankers prefer to lend to operators directly involved in the day-to-day operation of the hotel, as owner-proprietors are motivated to drive revenues and manage costs. This fits the franchisee model, for which debt has been made available in an otherwise difficult hotel development environment.

A hotel is deemed to be worth more with a franchise agreement in place as opposed to a management contract, due to a wider purchaser pool and ease of transfer of operation.

Moreover, with some leading hotel brand owners now seemingly focusing on the management of their brands, as opposed to the management of their hotels, I’m convinced we will see more franchise agreements in future.

David Bailey is senior director â€" head of consultancy at CBRE Hotels
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*Figures accurate as of 30 September 2013

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