For the second edition of the Tourinvest Forum, organized by MKG Group on September 8, Dominique Ozanne, Managing Director of Operations at Foncière des Régions and CEO at Général de Foncière des Murs, illustrated the current context for tourism investment in France.
Growth in Europe, and Germany in particular, is very significant. This is thanks to growth in average daily rates and the arrival of new clientele from emerging countries, whose growth should benefit the Old Continent first and foremost.
There is also a stark contrast between growth in the global supply of number of rooms in France, which has mostly been reabsorbed over the last ten years by the closing of independent hotels, and that of the supply of brands, which, inversely, is growing with close to 10 points growth for the penetration rate of chains on the period. Brands are developing while they make their business model evolve: in 2005 asset-light was on the tip of everyone's tongues, operators were growing by outsourcing properties and looking for partners for their business; today we hear more about asset-free, operators are growing with partners for both their properties and their business. Brand development is good news because they have the liquidity and partners needed to invest in their supply. However, that results in an imbalance between the renovated and not renewed supplie.
Paris's market is atypical. In the last five years foreign investment funds came into play from the Middle East, Russia, America, Italy, that now own two thirds of the capital's five star hotels. While this proves the city's resiliency and strong capacity to attract investors, we have not yet succeeded in bringing them to other regions. The schema is not the same outside Paris, except in major cities such as Marseilles and Lyon, where assets we have financed have fairly rapidly gained strength.
The hotel market has changed in recent years. There are now more players and we are seeing a strong cap rate compression for existing properties. However, this compression still does not affect assets that are under development, which represents a real opportunity for investors who wished to position themselves on this niche. Nonetheless this requires strong knowledge of the sector and good expertise in real estate in order to determine the pertinence and durability of a project in the long term.
Another difficulty on the market lies in anticipating regulatory evolutions. It is necessary to stabilize the situation in order to encourage investment. Different measures such as the VAT rate for the hotel and restaurant industry in recent years weigh on the profitability of operators.
One of the challenges of the sector is also the digital breakthrough that has given rise to new competitors, problems with distribution and e-reputations. It remains to be determined how dependent operators are on these players.
All these elements impact margins, which have been generally shrinking for 10 years, caught between an increase in costs and a drop in revenues.
Our strategy thus evolved in light of all these elements. We wanted to duplicate abroad what we do in France, while positioning ourselves upstream from the added value chain. Moreover, we decided to take an interest in the business in order to be able to offer our partners the full array of contracts and all the different types of financing available."
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