The hospitality sector optimistically, albeit cautiously, welcomed the third quarter
Expo Real ended October 9, 2019. Although there are still some smaller conferences scheduled later this year, it was an excellent ‘wrap-up’ session for many of the investors, developers, and operators present and active in the European hospitality space.
Most industry executives recognised that a cooling down of the market is inevitable. Yet, amidst a search of a ‘safe haven’ – fuelled to some extent by perceived uncertainty created by, for example, political inertia and/or drastic changed in policy making in certain parts of the world – Central Europe and, in particular, Germany are continuing to thrive. Here, the strong investor appetite coupled with the favourable interest rates have propped-up prices and somewhat ‘masked’ the turbulent times at hand. So, despite executives on the buy-side complaining about prices being too high to allow for the right returns, and irrespective of the economic and political ‘clouds’, the lodging sector appears to retain its optimism – at least for now.
‘Hot Topics’ During Expo Real 2019
Last year’s Expo Real was a lot about brands – brand acquisitions, new brand developments, as well as soft brands being launched by many of the global players. Which ones were the topics being picked up on the conference floor during the panel discussions and at the evening receptions during the 2019 event?
- Leveraging innovative technology and digitalisation across all segments of the business, for the benefit of all industry stakeholders. A panel discussion on the second day of the conference focused on the topic of ‘technology’ – in particular, the conversation focussed on the dialogue between investors, developers, brands, and operators. The fact of the matter is that, currently, not everyone is on the same page and all appear to have conflicting agendas. Often, for example, technology is implemented by the brands to improve effectiveness of guest loyalty programs. Third-party operators might be more interested in driving convenience for the travellers or improve the effectiveness of their commercial initiatives. The investors, however, are more interested in using smart technology with a view to developing ‘better’ assets from the get-go which, throughout their lifespan, can generate better returns. The big questions being discussed right now are thus: “How much is technology platform ‘X’, system, or tool worth to the different industry stakeholders?”, “What is the value-add and how does one measure the return on investment for the various constituencies involved?”, and “Who should ‘pick up the tab’ for those new technologies and systems?”. To ensure true alignment between the different stakeholders, the argument was raised to broaden the conversation and not to just hone-in on the ‘traditional’ fields that technology has helped to innovate (being in operations, finance, and the commercial department). One key component for the investors is, as said, the physical property itself: Driving system innovation in that area – which might include smart building initiatives, energy-saving measures, green building credentials, improved and more effective automated facility management programs, etc. – will deliver higher rates of return not only for the investors but also for the brands and/or third-party operators who would benefit from, for example, lower running costs (interestingly enough, Premier Inn in Germany, a company that invests, develops, and operates its own assets, has just announced investment in an advanced technical facility management program).
- Hybrid and alternative concepts – from innovators and market disruptors to mainstream players in the industry. For already quite some time now we have talked about new brands being active in the hybrid and alternative space – i.e., the hostels, serviced apartments, and Airbnbs of this world. Initially seen as niche products, it appears they have gained their firm spot as key industry players. The official ‘seal of approval’ came when big firms like Accor, Marriott, and Hyatt added their own niche offering to the product mix or when Generator, itself a relatively new player, just recently acquired the US hostel brand Freehand. Even Covivio, one of Europe’s largest REIT, is open to looking at assets operated by Meininger or Room Mate.The trend is partially backed by changes in the preferences of travellers. Partially, however, it is also supported by the ever-increasing want to ‘socially connect’, to form part of a community – which ultimately has provided a fertile ground for co-living and/or micro-living concepts. The latter has become popular across the globe and has ‘unlocked’, to some extent, certain sites previously not available to the hotel sector due to zoning policies and regulations. Yet, anecdotally, many of these co-living concepts are, upon close inspection, significantly more expensive than rents for comparable private studios. The question is, “Are operators in the co-living space able to deliver the value-add through their amenities and services?” The jury is still out. But, some travellers may question whether they form part of a genuine community if they have to pay for certain ‘services’, such as being able to walk someone’s dog… Sceptics might see in this the continued commoditisation of the private rental sector and/or a solution for only a very specific period in one’s life.
- White-label or third-party operators – (as yet) underutilised facilitators for growth. Like at most other real estate conferences across the globe, industry players like to talk about growth and expansion. Delegates at Expo Real discussed the approximately EUR €2.0 billion deal involving B&B Hotels and Goldman Sachs, but word also got out about IHG’s record signings involving two multiple development agreements (MDAs), which should deliver approximately 40 new hotels for the DACH region. It is such growth through trusted third parties that has helped ‘push the boundaries’ within the hospitality industry. Besides IHG having signed the MDAs with Success Hotel Group and with Tristar this year, and closed on an MDA last year with GS Star GmbH, other global players are also pursuing similar strategies. The third-party operator Gorgeous Smiling Hotels (GSH) is collaborating with Radisson as well as Hilton and Wyndham, for example, and Cycas Hospitality is working with IHG, Hyatt, and Marriott. Commenting on the MDA growth strategy, IHG’s Mario Maxeiner, Managing Director for Northern Europe, said, “MDAs are designed as a means to grow together with our owners. So, these agreements are a testament to the trusted relationships we have with our owners and to the continued success story of our globally renowned brands.” As the fight for more locations and better brand penetration continues, we can only expect these white-label operators to grow in importance – especially since they might offer local market expertise that some of the bigger global players may lack.
Concluding, and despite certain signs of recession and a somewhat cautious attitude towards the next 12 to 18 months, industry players at Expo Real were convinced that there is still a lot of value to be generated. What remains to be seen, though, is where this leaves the industry from a talent point of view. At present, Central Europe and in particular Germany remains a ‘candidate’s market’. Owners, developers and operators in the hospitality industry are already trying to woo a comparatively small talent pool – now, they are facing increasing competition from domestic and international players as well as new market entrants focusing on, historically, niche sectors such as serviced apartments and student housing. We have thus seen hospitality employers on the investor and operator side having to be more flexible as it relates to securing their next leaders – regarding desired backgrounds and experience levels but also as it relates to specific sector expertise. A broader definition of what constitutes ‘hospitality expertise’ has helped some players on the lodging side to, for example, beef-up their teams with executives coming from the retail or system chain restaurant sector. Interestingly enough, this has also helped to bring in some fresh perspectives as it relates to developing ‘better’ / more efficient real estate and / or facility management best practices and green building credentials. Gone are also the days where relocating executives across boarders, continents or cities was seen as a ‘last resort’ to fill leadership vacancies… Overwhelmingly, though, companies have had to up their game as it relates to their remuneration best practices in order to secure the right talent. Bonus-programs across the board have been reviewed during the first part of 2019. Remarkably, though, the up-and-coming brands and start-ups are continuing to buck the trend and are able to attract talent at a perceived ‘discount’ to the rest of the market.