Pandemic Will Spur Hotel Industry Consolidation, Real Estate Conversions

Author image

Russell Flannery   Forbes U.S. Staff

Intercontinental hotel

Photo: InterContinental Hotels & Resorts Facebook

Airlines have gotten a lot attention when it comes to the stunning economic fallout from the coronavirus pandemic.  Airline passenger revenue is likely to be drop by 55% this year compared with last year, the International Air Transport Association said last month, for example.

Yet the hotel industry, another travel-related business, is also facing upheaval. Shares in international chains like Marriott and Wyndham have recovered from their 2020 bottoms as lockdowns ease in much of the world, but they remain down a quarter or more from a year ago. Pressure on their business and hiring will remain amid slower economic growth and weaker air travel.

In turn, the industry will face imbalances of room supply and demand that lead to consolidation and the conversion of hotel assets into new uses, according to a top Greater China hotel industry leader.

Business “is going to be very challenging” from oversupply created in an era of low interest rates and easy financing around the world, said Steven Pan, chairman of Taiwan-listed Formosa International Hotels. “There will be a huge – probably the biggest—consolidation” of hotel assets in the coming decade, he said.

Pan spoke on Thursday as part of a series of online “Leadership Insights” conferences organized by J.P. Morgan.

Marginal hotels will be hit, but larger ones be affected, too. “I would say that consolidation will probably start from major casino operators, because they are also big conference providers,” Pan said. Hotels that cater to large business conferences may face the biggest changes, he said. “There will be a lot of risk assessment and conversion of hotel assets into other assets.”

Emerging economies will be less hit, generally speaking, Pan believes. “I think the consolidation will be a little less in China,” he said.  New “hotel development will also come to a stop in China,” he added.  “The golden age of hotels in that development will come to a stop for a long time.”

One change in Shanghai on Saturday: the Four Seasons Hotel in the city's Lujiazui financial distract was rebranded as the Regent Shanghai Pudong hotel. In 2010, Pan's Formosa International Hotels acquired the Regent luxury hotel business created by Robert Burns. In 2018, it formed a joint venture with UK-based InterContinental Hotel Group to expand the Regent brand internationally.  The InterContinental Hong Kong will also be rebranded as a Regent in 2021. In other news involving InterContinental Hotels Group and China, the global hotel company on May 14 opened a flagship store in partnership wth Ctrip, China’s largest online hotel booking site and part of Trip.com. IHG has more than 470 hotels across Greater China.

Formosa International Hotels owns the Silks Group, which consists of four hotel brands including international luxury Regent, cultural luxury Silks Place, hotspring resort Wellspring and boutique hotel JustSleep.

Asked whether Pan himself would be an asset buyer amid the coming industry consolidation, he replied, “Of course, I am a buyer, but very selective,” he said. “Not right now.”

Author image

Russell Flannery   Forbes U.S. Staff

I'm a senior editor and the Shanghai bureau chief of Forbes magazine. Now in my 16th year at Forbes, I compile the Forbes China Rich List and the Taiwan Rich List. I was previously a correspondent for Bloomberg News in Taipei and Shanghai and for the Asian Wall Street Journal in Taipei. I'm a Massachusetts native, fluent Mandarin speaker, and hold degrees from the University of Vermont and the University of Wisconsin at Madison.