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Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach

Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach. Daniel Freeman CEM Computerized Economic Models, Rehovot, Israel Daniel Felsenstein Department of Geography, Hebrew University of Jerusalem, Israel Research funded by the Ministry of Tourism, Israel. Background.

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Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach

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  1. Forecasting Regional Investment in the Hotel Industry:An Input-Output Approach Daniel Freeman CEM Computerized Economic Models, Rehovot, Israel Daniel Felsenstein Department of Geography, Hebrew University of Jerusalem, Israel Research funded by the Ministry of Tourism, Israel

  2. Background • Severe demand fluctuations • Tourism crisis in Israel (2000-2004), stock of hotel rooms reduced by 33 percent • Hotel rooms as bottleneck for tourism development

  3. Research Questions • What is the number of hotel rooms needed in peak and trough periods? • What is the magnitude of the demand push that can stimulate the hotel sector into new investment? • How is this response regionally differentiated?

  4. Multi-Regional Input Output Model (MRI0) Data Collection Estimate Capacity Coefficients Estimate Hotel Capital Stock Regional Multipliers Investment Model: Regional Rates of Return Estimate Government Subsidy New Regional Hotel Investment in Response to Increased Demand Schematic Representation of the Analytic Process

  5. Model • MRIO Model coupled with Investment Matrix • 26 sectors, 4 hotel sectors (Grades 1- IV), 6 regions • All prices 1999 equivalents (base year) • Forecasting capability: interaction P and X matrices

  6. Eq (2): T0 = P*X T0 P X i 1 P1 26 1 Value of Branch Invest. (Sh) = Regional Investment Coefficients  Branch Output (Sh) mn 26 26 P26 26*6 Matrix Structure – Forecasting Model

  7. Forecasting Model – cont.

  8. Findings • Size of hotel investment stock • Estimated and reported returns to capital • Role of Government Assistance • Hotel and Tourism industry national multipliers • Capacity Coefficients • Forecasting model

  9. Direct Hotel Output (Local and Foreign Tourist Demand) by Grade of Hotel (M.SH, 1999 prices)

  10. Hotel and Tourism Outputs; I-O Results (Msh, 1999 prices)

  11. Hotel Rooms by Grade of Hotel and Region

  12. Hotel Investment by Grade of Hotel and Region (M Shekels, 1999 prices)

  13. Estimated Rates of Return by Investment Category and Grade of Hotel(Million Shekels)

  14. Revenues, Profits and Occupancy Rates: Hotels by Selected Locations

  15. Capital Returns for Hotels in Select Locations (%) by (a) % annual room occupancy rates and (b) size of hotel

  16. Capital Stock 16.97 Rooms 43,000 Output 5.57 Gov. Subsidy 1.14 (27.5%) Actual Capital Return 0.63 Difference 0.51 Actual Capital Returns 0.63 (11.3%) Expected Capital Returns 1.57 (28.1%) Hotel Profitability 1999 (m.Sh)

  17. GDP Multipliers in the Tourism and Hotel Sectors

  18. National Per-Room Occupancy Coefficients by Grade of Hotel, 1999 prices

  19. Hotel Visitors and Visitor-Nights Per Room, by Region and Grade of Hotel

  20. Hotel Revenues and Capital Stock per Roomby Region and Grade of Hotel

  21. Number of Hotel Rooms by Grade of Hotel and Region in Response to Demand Increase of 100,000 extra Tourists* * National Avg. = 592.

  22. Investment Required by Grade of Hotel and Region in Response to Demand Increase of 100,000 Extra Tourists (M. Shekels, 1999 prices)* * National Avg. = 240.

  23. Conclusions • Regional variation in hotel profit levels • Discrepancy expected versus reported rates of return • Regional variation in hotel capacities • Differing regional responses to increase of 100,000 extra tourists

  24. Implications Arising from Results • Centrality of the hotel sector within the tourism industry • Hotel construction: protracted and time-dependent process –needs to be addressed explicitly • Regional investment coefficients- need to account for regional variations in land prices

  25. Hotel Investment (Capital Stock) by Grade (M. SH, 1999 prices)

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