The relative importance of sector and regional factors in the hotel industry. Evidence from the Italian market
| Published date | 27 April 2010 |
| Pages | 162-180 |
| Date | 27 April 2010 |
| DOI | https://doi.org/10.1108/14635781011048830 |
| Author | Claudio Giannotti,Gianluca Mattarocci,Luca Spinelli |
| Subject Matter | Property management & built environment |
The relative importance of sector
and regional factors in the hotel
industry
Evidence from the Italian market
Claudio Giannotti
Faculty of Economics, University LUM Jean Monnet of Casamassima (BA),
Casamassima, Italy
Gianluca Mattarocci
Faculty of Economics, University of Rome Tor Vergata, Rome, Italy, and
Luca Spinelli
University of Rome Tor Vergata, Rome, Italy
Abstract
Purpose – The purpose of the paper is to compare the role of the sector and geographical features in
explaining the performance of a hotel structure.
Design methodology/approach – The paper constructs a measure of net profit for available room
(GOPPAR) for a representative sample of Italian hotels and uses a constrained linear regression model
in order to identify the role of sectoral and geographical features. The analysis is released adopting a
multiple cross sectional approach and considering not only the average role of sectoral and geographic
characteristic, but also the time trend of relation inspected.
Findings – Results obtained show that the overall national trend is not significant for explaining the
performance of each hotel. Considering geographical and sectoral features, the first of these explain
better the disalignment of the performance respect to the national average.
Research limitations/implications – The paper proposes an analysis of the hotel industry using a
standard geo-sectoral classification. More data about the characteristics of the firms considered in the
sample could allow to define a more detailed model that consider also other hotel features that could
impact on the demand and supply of the service.
Practical implications – Results could be useful for the hotel chains and for institutional investors
specialized in the hotel sector, in order to define a first guideline for the property selection process and
diversification portfolio strategy.
Originality/value – The paper represents the first work that analyse the role of regional and
sectoral factors in explaining the performance of the hotel industry and supports the thesis proposed
with and empirical evidence on world leading market (Italy).
Keywords Hotels, Geographicregions, Italy
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
The authors belong to the Laboratory of Real Estate Finance, within the PhD in Banking and
Finance of the University of Rome Tor Vergata. This paper is the result of the authors’ common
efforts and continuous exchange of ideas. The individual sections of the paper can be
acknowledged as follows: the introduction and conclusions were worked out by Claudio
Giannotti, section 2 by Luca Spinelli and section 3 by Gianluca Mattarocci. The authors wish to
thank Prof. Alessandro Carretta for his valuable advice about the research and Valeria Di
Claudio, AICA association (www.aica-italia.it), for the availability of data used in this study
JPIF
28,3
162
Received January 2010
Accepted March 2010
Journal of Property Investment &
Finance
Vol. 28 No. 3, 2010
pp. 162-180
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781011048830
1. Introduction
Real estate industry is characterized by high heterogeneity of performance dynamics
among types and regions (Viezer, 2000). The hotels seem to show differences compared
to the other real estate investments and highlight some distinctive features of property
cycles (Corgel, 2005). These results point out that some evidence obtained for the
overall real estate industry cannot be assumed also for the hotel industry, without
testing their fairness.
The role of sector and geographic characteristics on the investment performance
could be studied looking at the correlations between performance achieved by different
property types and/or decomposing performance with a statistical procedure that
allows to obtain results less influenced by the cycle and to consider the time-varying
nature of relationships (Lee and Devaney, 2007). Researches on different hotel types
and locations attain to the performance correlation (Jang and Yu, 2002) and there is a
lack of studies about the role of sector and geographic profiles in explaining the
performance of this industry
Using the model proposed by Heston and Rouwenhorst (1994), the article analyses
the role of these factors in the hotel industry, looking at Italy, one of the world’s most
interesting tourism markets[1].
Empirical evidence demonstrates that regional features impact more significantly
on the performance achieved, and allow it to best explain the dynamics of the
performance measure. Results achieved may be useful especially for institutional
investor and hotel chains in order to select new investments and to construct a portfolio
maximizing the diversification benefits.
The article presents a literature review about the sector and geog raphic
diversification strategies in the hotel industry, analysing the main explanations that
can justify the different results achieved by properties located in different area (section
2.1) and/or with a different destination of use (section 2.2). The empirical analysis
presents the sample feature in respect to the overall Italian market (section 3.1),
explains the methodology adopted (section 3.2) and evaluates the results concerning
different hotels’ GOPPAR dynamics (section 3.3). The last section presents some brief
conclusions and implications for hotel chains and institutional investors specialized in
this sector (section 4).
2. Literature review
Market studies demonstrate that hotel industry is significantly heterogeneous and the
choice to consider only overall national trend could be misleading (Gallagher and
Mansour, 2000). Respect to other real estate investments, hotels are characterized by an
high risk of vacancy because all renting contracts are defined for one day or a small
number of days and the customers’ turnovers is one of the main aspects that had to be
managed (Jeffrey et al., 2002). Anothe r specific aspect is the opportunity given to the
hotel manager to change the pricing policy in the short term in order to react to the
demand and supply dynamics (Chen and Kachani, 2007).
On the basis of these business characteristics, the analysis of hotel performance had
to take into account specific factors that could affect demand and supply of the service
or, better, had to classify investments in order to define subsamples that are exposed to
the same risks. In the following sub-sections a short review of literature about the
relevance of geographical and sector features in explaining hotel risk is presented.
Regional factors
in the hotel
industry
163
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