Big hotel chains and unbranded-hotel owners find they need each other

High interest rates impacting the hospitality industry have led to a rise in franchise agreements

For big chains, new franchise agreements from conversions keep investors happy by opening new hotels in the short term. Meanwhile, independent, unbranded hotels like switching to franchise agreements because it gives them greater access to potential bookings and cheaper financing from lenders.

Key takeaways

• For Marriott, conversions in 2023 accounted for 40% of organic room signings, double the 20% rate a year earlier. Half of France-based Accor's hotel openings last year were through conversions. That matches trends across the industry;
• Large operators have launched "soft" and conversion brands aimed at picking up independents. Those brands help boost net unit growth, analysts said;
• In the U.S., interest rates for new branded hotels are between 6.75% to 8.25%, up from 5-6% before the pandemic. In Europe, real estate interest rates are trending at around 6% and 8%, up from 2.5% to 3% before the pandemic.

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