DLA Piper Sofia Manager Anna Rizova-Clegg: Budget Sector Key for Bulgaria Hotel Rebound

Novinite Insider » INTERVIEW | Author: Milena Hristova |August 31, 2010, Tuesday // 12:19
Bulgaria: DLA Piper Sofia Manager Anna Rizova-Clegg: Budget Sector Key for Bulgaria Hotel Rebound

Interview of Novinite.com (Sofia News Agency) with Anna Rizova-Clegg, Country Managing Partner in the Sofia office of DLA Piper, the international legal practice

What are the main conclusions of the survey of 417 European hotel executives, conducted by international law firm DLA Piper?

The respondents in the survey about the European market described 2010 as a year of cautious optimism and conservatism. These two qualifications, which sum up best the assessments of the sector development, are not radically different from the opinions that managers expressed in our previous survey in 2009.

54% of the respondents describe their 12-month outlook for the European hospitality industry as “bearish”. Even though the percentage is lower than last year, when 84% of the respondents expressed a similar view, the results are compounded by fears from over half of hoteliers - 55% - that room rates will not return to pre-financial crisis levels until after 2012.

Bullishness is up from 5% to 27%. Growth is expected to be limited in 2010, but over the next three years significant numbers of hotel chains may expand. Respondents identified India and China as representing the best opportunities for significant growth for their businesses.

Many executives at well-capitalised hotel chains have been encouraged by the state of the market and the most popular reason is the investment opportunities created by the financial crisis (30%).

The survey shows that 2010 can also be described as a year of “facing the reality”. This is a period of shedding unprofitable assets in the hotel business. Now, more than ever, there is a need to change corporate structures, cut expenses and look to sectors with long-term and sustainable opportunities for development. More than half of the respondents in the survey say they are seeing greater use of joint ventures to spread risk and access capital.

Which are the biggest obstacles that hotel managers and investors in the sector face?

The general deterioration of the state of the economy and the lack of liquidity has certainly impacted the hotel business. Due to the restricted financing, deals can be concluded only by investors with money at hand. The forecasts for 2010 can best be described as “cash is the king”.

A major part of the respondents in the survey pointed out the importance of managing money flows and control better expenses.

45% of respondents cite a decline in room rates as having had an adverse impact as opposed to 37% mentioning a decline in occupancy. I hope that consumers have managed to make a good bargain out of this financial turmoil.

As far as the Bulgarian market is concerned, our impressions are that two of the main obstacles that foreign investors in the hotel sector face here are the poor infrastructure across the country and the visa regime with Russia, which hampers the flow of tourists from a traditional for Bulgaria market with huge potential. The people from the hotel sector are putting their faith in the tourists from Western and Central Europe due to the first signs of recovery in these countries.

Is Bulgaria still a hotspot for investments in hotels? Which sectors are the most attractive for investors?

A survey of the hotel and hospitality industry by DLA Piper found that 22% of all respondents – executive directors of 417 European hotels – pick Eastern Europe, including Bulgaria, as the most prospective region for investments in the next three years. Eastern Europe is preceded by Great Britain (40 %), China (28%), Russia (27%), India and Latin America (24 %). The Middle East and the other countries in Western Europe lag behind in the ranking. The economy/budget sector has been named as the most attractive investment prospect.

Is the Eco or Green sector considered to be an attractive opportunity?

Hotels from the Eco or Green sector are attractive for some of the investors, but they will hardly prove to be a driving force for the sector rebound. The Eco or Green sector is the most attractive opportunity for only 6% of respondents. The right moment for this type of hotels has not come yet most probably because the market is too cautious.

How can Bulgaria’s hotel sector rebound faster from the crisis?

Bulgaria did not manage to escape unscathed by the crisis on the global investment hotel market. The ongoing real estate crisis inevitably cast a shadow over the tourist market, which led to a glut of hotels for sale, particularly in the resorts along the Black Sea coast. Experts however say that supply considerably outweighs demand.

To top it all off, over the last year there has been a drop in the number of tourists and the prices of hotel services. As I already mentioned investors are very much interested in hotels from the so-called economy/budget sector and this may be the key to the quicker rebound of Bulgaria’s hotel sector.

Do you support the proposed amendments to the Law for encouraging investments, which will bring back bonuses for investors in hotels as the country is trying to stay competitive?

Despite the difficulties, which hoteliers face, Bulgaria continues to be an attractive tourist destination. The availability of possibilities for the development of the tourism sector as a whole and the state commitment to this process are conditions needed to attract potential investors in the hotel sector in Bulgaria.

The proposed amendments to the Law for encouraging investments provide for a wide range of bonuses for investors in projects, including investors in the hotel sector. Incentives for the development of the tourism and hoteliers sectors are a tool for boosting the whole economy and keeping low the unemployment rate.

Is it true that the categories of some of the hotels offered for sale in Bulgaria do not meet international criteria?

There are currently no international standards for hotel categories. Even at the level of the European Union, which is making efforts to apply one and the same rules and norms, hotel ratings differ in each country. This is the reason why hotel categories are regulated by the legislation of each country. In Bulgaria this is envisaged by the Tourism Law and a regulation for ratings based upon it. Big international hotel chains are a different story since usually they have their own standards, which are obliged to meet.

This is the explanation why the accommodation of part of the hotels offered for sale in Bulgaria may not meet the requirements of the assessment of hotels outside the country, which have the same star ratings in line with local legislation.

On the upside, Bulgaria’s legislation sets standards for the quality of the services offered, as well as for the professional and language skills of the staff.

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Tags: Anna Rizova-Clegg, DLA Piper, hotel, hotels, real estate, property

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