There is a need for both large hotel chains and independent hotel operators

The hospitality industry is experiencing a slowdown in the construction of new hotels, leading to a growing number of franchise agreements between independent hotel operators and large international chains.

Large hotel chains utilize fresh franchise agreements for conversions in order to satisfy investors through the rapid opening of new hotels. Independent hotels want to switch to franchise agreements for better access to reservations and lower lending costs.

Patrick Scholes, an equity analyst at Truist, says that in the past, around 10% to 20% of new hotel rooms were conversions, but now it's likely closer to 40%.

In 2023, conversions accounted for 40% of organic room bookings for Marriott International, a U.S.-based company, double the 20% from the previous year. Last year, conversions accounted for half of Accor's hotel openings, a French company. That is consistent with industry trends.

As the pandemic subsided, hotel businesses profited from the spike in "revenge travel." However, smaller businesses that rely on borrowing money to fund their operations were negatively affected by the increasing interest rates.

According to hotel development intelligence company Lodging Econometrics, about 1,980 hotels will open in 2023, down from 2,730 in 2019.

Access to hotel financing is currently restricted, particularly in South America, as many hotels are having trouble paying their debts as a result of the pandemic, according to Fernanda L'Hopital, director of consulting and valuation for HVS, a hospitality consulting firm, in South America.

According to Robin Farley, an analyst at UBS, owners who need to refinance their loans or have many loans maturing may prefer a branded hotel.

Zach Demuth from JLL predicts that around $217 billion in hotel loans will come due worldwide by 2025.