Vision Hospitality Management regional director Gulf region Nigel Teasdale believes there is an upside to the local hotel market, even in times of perilous international financial conditions.
What is the background of Vision Hospitality Management?
At the moment Vision is Europe's largest hotel asset management company. What that means is that our clients are exclusively hotel owners and investors. We never work for brands, which is very important to us.
Some of our clients wish to remain confidential, but in the UK our clients include the Royal Bank of Scotland, which has more than a billion pounds of hotel assets in Europe including properties like Grosvenor House on Park Lane. We have been advising them through the management contract negotiations with Marriott, and it is now being refurbished as London's first JW Marriott-branded hotel.
What trends are you currently witnessing in the industry?
Back in the UK, over the last 10 years we have seen a move away from owner-operators - in what is often called the 'bricks and brains split' - and a number of institutional investors and high-net-worth individuals have come into the hotel sector and taken a stake.
Typically those investors do not have hotel sector skills in-house, and they are very happy to contract those out. That's where Vision comes in; we act for the owners and investors and sit on top of the operators.
A number of operators of international brands are very good at driving the top line - they have wonderful reservation pipelines - but they may not always be so good below the line at controlling costs and that is an area where we find the attention to detail and the monthly 'pester' works.
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How are you able to influence the top-line for hotel investors?
It's a bit like the Clive Woodward rugby principal. If you can shave 1% off on 50% of your costs, then you are delivering a lot. Each little bit may not look like a lot, but when you put it all together you can make quite significant savings to the bottom line and deliver more returns to the owner.
We think that is going to be particularly appropriate in the Middle East region where we have a situation where there is a lot of pressure on labour costs, food costs and supplies generally.
There is quite a lot of inflation, so controlling costs is going to become more and more important. The top line may continue looking after itself, but it may not.
We have had a situation in the region where revenues have really been looking after themselves until now, with very strong trading levels. High occupancies have enabled the hotels to drive their RevPAR pretty effectively.
There will always be concerns of over-supply which affect the market and it will become more competitive. In this situation our sales and marketing experience, and our ability to look at different sectors of demand to spread the business base, will help with top-line revenue.
And do you see any scope for existing investors and owners to utilise your services as well?
We certainly hope so. We have noticed from our discussions with owners in the region that a number are asset managing their properties in-house. The risk there is that the relationship can be too cosy between the owner and their hotel because they are all part of the same company.
The benefit of bringing in an external asset manager will be the experience - as a company we have more than 200 hotel profit and loss statements pass over our desk every month and while we respect the confidentiality, we have a very good picture of where the market is at.
We also have the advantage of being objective and independent, so it is maybe easier for us to lean hard on the operator. There are a number of owners who have created their own brands in the region and we would see that as a particular area of opportunity.
Again it may be too cosy between the in-house asset manager and the operator because they all grew up together and as a result there may not be the iron fist that is needed to drive the operator.
How do you perceive the outlook for the market in the Middle East?
I think certainly in Dubai we are beginning to see signs of the increase in supply biting, and from Vision's business model point of view that is not necessarily a bad thing, because there is a counter-cyclical element to our business.
As owners' returns may start to tail-off a little bit, that may be the time to look around and invest in expertise to drive the return more strongly.
And also another component to it is that as a number of hotels here are past their first two or three years of trading with heavy occupancies, the management contracts may not have had FF&E reserves or escrow funds for refurbishments, so there may be a number of owners looking for advice on just what level of capital expenditure they need to put back into their product.
There may also be opportunities for them to tweak their offer to meet market demands - we have a lot of expertise in that sector and can certainly advise on changing the offer to meet expectations.
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