Economic turmoil set to slow hotel market growth

The turmoil in the world's financial markets will inevitably impact the plans of UK hospitality operators, experts warned this week.

With the City still reeling from the collapse of investment bank Lehman Brothers and the HBOS/Lloyds TSB merger, industry watchers are predicting a new conservatism in the previously resilient hotel sector.

Melvin Gold, hotel consultant, said: "I think the events cannot but have an inevitable impact on the hotel sector given the split of owner and operator in the past few years. The current market must carry more implications - such as investors adopting more conservative strategies."

Jason Briggs, director at accountancy firm BDO Stoy Hayward Finance, said that while hotel groups such as Le Meridien - whose property assets are controlled by affiliates of Lehman Brothers and Starwood Capital - were not likely to be affected in the short term, the implications for the hotel sector could still be significant.

"The loans will be taken on by an alternative lender - such as Lloyds TSB with HBOS - and the effects in the short term will be minimal," he said. "But long-term it could mean less flexibility, and the new lender may not have the same desire to continue expanding, for example. The bank will be reassessing the hotel group's acquisition programme and will be keen to make sure each loan is risk-managed. It's basically gone from feast to famine."

David Pantin, chief executive of Pantin Hotels, confirmed that there has been a tightening in lending criteria, but added: "If, ultimately, the uncertainty leads to more realistic valuations for hotel property, it won't necessarily be a bad thing."

And Desmond Taljaard, chief operating officer for Europe at Starwood Capital, said ongoing projects should not be unduly affected. "They are long-term schemes, and to apply the handbrake every time there is a change in the markets is not practical," he said.

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By Gemma Sharkey and Chris Druce

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