Key considerations for owners when de and re-flagging hotels

International real estate and construction consultant Drees & Sommer and global law firm, CMS, hosted a recent event in Dubai to shed light on the increasingly popular practice of de and re-flagging in the hotel industry.

The past 18 months have seen some high profile examples of hotels changing their brand, where removing a brand is referred to in the industry as ‘de-flagging,’ and where it has been swapped for another brand - ‘re-flagging’.

Last year, Arne Sorenson, President and CEO of Marriott International, stated the group was de-flagging a number of underperforming Sheraton hotels, eliminating a total of 10,000 rooms from its portfolio between 2017 and 2018, in an earnings report issued by the group in November. Hyatt Hotels and Viceroy Hotels & Resorts have also removed under-performing hotels from their portfolios to focus on upgrading remaining properties to remain competitive.

Key speakers at the event included Filippo Sona, managing director of global hospitality at Drees & Sommer, Morgan Tuckness, head of global hospitality, technical services & development at Drees & Sommer, John O’Connor, co-managing partner at CMS Dubai and Nick Kramer, head of commercial construction at CMS.

Sona explained the key commercial considerations that may lead to a hotel owner choosing to de-flag or re-flag a property. “Hotel owners may look to de/re-flag for a number of different reasons. Commercially, 47% of owners seek to maximise their profits, while 27.4% choose to de/re-flag as a result of the operator’s inability to achieve desired financial targets. 26.6% of de/re-flaggings occur due to owner-operator relations turning sour.

Many industry experts will argue the real reason owners may look to make this change is in response to an economic slowdown, a desire to become independent or the decision to undergo a brand makeover,” he said.