External hotel operators will grow across Europe, says HVS

It appears that the number of hotel owners using third-party operators to manage their properties will increase across Europe, reflecting the desire for flexibility, as well as a host of other benefits, according to a new report from global hotel consultancy HVS.

The trend of third-party operators (OPC) has grown out of the US, where the concept has become commonplace, and most mid-scale and up franchised hotels are now run by OPCs. These operators are not affiliated with the franchise owner or brand, and as such may be more aligned with the owner’s goals, often leading to higher profits as a result. Examples of OPCs in the UK include RBH Hospitality Management, which has been a key partner for brands such as Accor, IHG, Marriott and Hilton.

In Europe, the use of TPO is more common among small and medium-sized hotels, particularly limited service or extended stay properties. However, as the concept has matured, more experienced TPOs are being sought for large corporate and luxury hotels, some as well as operating under a licensing agreement with a hotel brand.

In a sample of major European hotel operators collected for the report by HSV, the number of hotels in the sample operated by OPC has grown by around 40%. This percentage is expected to grow an additional 5% by 2025.

“The rise in OPCs has arguably been driven by an increase in franchising as brand operators shift from operational management of hotels to focus more on brand development and distribution,” said co-author Of the report. Nikola MiljkovicSenior Associate at HVS London.

The report outlines the often most favorable terms obtainable from TPOs, including shorter contracts than usual brand management arrangements, sometimes just 12 months compared to 20-30 years. Termination rights can also be more owner-friendly and less expensive, improving asset liquidity, and with more direct involvement in operations, OPCs can generally boost performance and be more accurate with financial projections.

“While using a TPO often involves fees in addition to franchise costs, larger TPOs benefit from operational advantages such as being less restrictive, being able to react more quickly to market changes on each individual property, and improving the purchasing power. By being more objective, they can also choose which brand programs to participate in on a property-by-property basis,” added Miljković.

“The fundamental focus of brands continues to be the success of the brand and this can conflict with the interests of the owners,” concluded the co-author of the report. jon critchleyDirector of HVS Hodges Ward Elliott, the brokerage and investment services division of HVS London.

“The popularity of third-party managers is due in part to alignment of interests, particularly when it comes to asset value and profitability. We are likely to see its use grow in the UK and Europe as we see an increase in the number of trusted and established OPCs.”

Add Comment