The hotel business industry is in increasing demand with more hotel properties added year after year reaching nearly 187,000 properties globally according to the STR report dated June 2023. This is despite the fact of financial crises, pandemics, and geopolitical situation.
In a highly competitive environment, the relationship between the brands and developers/owners became a bit shaky due to the fluctuation of global economy and the rising levels of inflation rates which had left a greater impact on both top and bottom line of the yearly hotels budget and imposed more pressure on brands management which led in many cases to an exit scenario.
This was one of the most obvious reasons for the top tier brands to start focusing on the franchising option as a new growth strategy to maintain presence and reduce the operational inefficiencies in a more cost-efficient way. This helps them expand without significant capital investment and less liabilities; at the same time providing owners ROI, brand expertise and hotel management operation solutions for all parties involved.
To put it simply, a franchise agreement with a third party hotel management company like Valor Hospitality Partners is no different contractually than a brand managed asset. An owner might want to be more involved in his asset but lack the skills, team, or inclination to operate the hotel themselves. At the same time, they recognise the benefits of having an established name on their asset valuation and prestige with the strength of the brand. Enter the third-party operator, who will sign a management contract and may also help negotiate a franchising arrangement with a brand. Thus forms a strong partnership with an operating company who are fully owner centric, take ownership of the targeted IBITDTA and the expected ROI of the owner or developer.
It provides a shorter and flexible contract, lower cost, flexibility on specifications, more attention and a hands-on approach, alignment with owner interest with multi brand experience making it as an ideal hotel management solution.
The story of the third-party operator had begun in the United States in 1983, but started gaining popularity in early 2000, and nowadays, the third-party business model hotel brand companies, from Wyndham and Hilton to Marriott, Hyatt to IHG, and more. They have all shifted their focus to derive fees by lending their name and intellectual property which is the key growth driver for their brands except for the luxury assets, where the brands, typically, like to retain management, to keep it as a flag ship serving their continuous growth strategy.
Today, the global hotel franchise market is anticipated to grow from US$ 37 Billion in 2023 to US$ 77 Billion in 2032, although the franchise model is mature in USA, it keeps emerging in Europe ranging between 59 to nearly 90% across the top international hotel brands.
As for the GCC region, both UAE and Saudi Arabia are actively investing in their hotel industries, positioning themselves as top tourism destinations. We are seeing a substantial change in the owner and developer mindset. They have interest to shift their assets from brand managed to the franchise model. Valor serves as a key experienced international player that delivers on promises successfully.
