Hotels & Hospitality—a transformational year

Hotel operators swiftly adopted technological advancements to deliver contactless experiences and hotel investors responded to shifts in hotel demand and leisure traveller preferences by adjusting their investment strategies to acquire assets in less dense markets such as resorts.

Additionally, Airbnb, Inc. finally announced its highly anticipated initial public offering (IPO), raising $3.5 billion, the most ever for a U.S. tech company. More recently in July 2021, Membership Collective Group, the parent company of the Soho House chain of private clubs, raised $420 million in an IPO offering 30 million shares. The impact of these events on the hotel and hospitality industry will endure for years to come and in many ways will redefine the travel experience of tomorrow.

Hotel performance in Europe deteriorated significantly during the pandemic, reporting a record low occupancy of 33 percent in 2020—the lowest of all global regions. With ongoing lockdowns and travel restrictions, both business and leisure travel remain under pressure. However, with vaccine distribution racing full steam ahead and significant pent-up demand from people keen to get travelling again, we are optimistic about the road to recovery across the region. Airlines and travel companies in the UK reported a surge in bookings after Prime Minister Boris Johnson announced his roadmap out of lockdown back in February 2021, with EasyJet, Ryanair, Tui and Thomas Cook all reporting a jump in bookings to destinations including Spain and Greece. Since then, travellers across Europe have been booking holidays, keen to get away, yet holding their breath to see if their holiday destination will escape being added to a “red” list country, causing frustration for many and a potential 10- day quarantine stay on their return.

Travel patterns will also continue to showcase domestic drive-to resort destinations and less dense markets— where travellers can stay in private accommodation, enjoy open spaces and avoid large groups. Branded residential and serviced apartments have been in favour during the pandemic too, offering self-contained accommodation and facilities which make it easier for guests to socially distance. Corporate demand is expected to take longer to recover as many companies have adopted digital technologies to connect virtually with colleagues and clients. In addition, restrictions in international air travel and concerns over hosting large-scale conferences and events will deter corporate travel for the time being. When corporate travel does return, longer, less frequent commuting choices could create significant opportunities for hotels.

The Covid-19 pandemic has proven that businesses and employees can be more flexible in their working behaviours and hotel operators currently rethinking their strategy need to embrace new opportunities to optimise space and maximise revenue.

Now, more than ever, it’s a great time for WFHotel to become a bigger part of hotels’ offer. Many city hotel operators are naturally paying close attention right now to the return of the corporate demand; a new framework to draw alternative business into their hotels could be a lifeline for future growth. Pre-pandemic, several hotel operators were already offering co-working spaces. Most recently, in September 2021 Kew Green Hotels has launched a partnership with Othership to provide co-working lobby spaces throughout it’s 47 UK properties. The coronavirus pandemic highlighted the resilience of the open-air hospitality market as the domestic ‘staycation’ became ever more popular. In turn, we have seen growing interest from investors keen to tap into this sub-segment of hospitality. Firstly, through KKR’s acquisition of Roompot Group in 2020 and, Blackstone’s purchase of Bourne Leisure Holdings (which manages Butlin’s and Haven holiday parks in the UK ) for a reported £3 billion. In June 2021, KKR also agreed to acquire its rival Landal GreenParks in a deal at an undisclosed price. The move will create a European holiday park powerhouse, with 300 parks across 11 European countries, and a total of 32,000 homes.

ESG investing is also growing in importance in the European commercial real estate sector, with 13 of JLL’s top 14 capital markets clients now committed to developing and publishing a pathway for all real estate assets under management to become net-zero by 2050, be signatories to the UN’s Principles for Responsible Investment or participate in the Global ESG Benchmark for Real Assets. Action is undoubtedly needed when you consider that the sector alone represents around 40 percent of total CO2 emissions, with hotels producing one of the highest carbon emission intensities compared to other property types.

Hotels are taking steps in the right direction to become more sustainable, with many hospitality groups announcing policies to address environmental concerns. However, more must be done to accelerate ESG into hotel strategies. Hotel investors are increasingly recognising the importance of ESG, which will clearly influence how they invest moving forward. Demand for real estate assets with strong ESG credentials is growing, and the hotel sector needs to ensure that measures to respond to this trend sit at the heart of its strategies.

With record levels of unspent cash reserves on hand, private equity groups and high-net-worth individuals are expected to drive the bulk of liquidity in 2021. While the level of distress across the industry is relatively limited, as banks and governments have generally been accommodating, pressure is building as owners continue to be weighed down by high operational costs. This dynamic will result in the sale of hotel assets situated in typically tightly held markets. Moreover, price-to-market opportunities are expected to arise as non-core and non-strategic owners exit out of investments.

Consolidation will also be a likely candidate for growth as the industry navigates through the recovery period, with merger and acquisition deals almost certain. At the tail end of 2020, Europe’s largest hotel brand, Accor, struck a deal with hospitality owner and developer Ennismore to create a new family of boutique hotels including brands such as: The Hoxton, 25Hours, Mama Shelter and Jo&Joe to name just a few. Hotel operators are focused on growing their brands with an eye on opportunities from the fall out of Covid-19, which wouldn’t ordinarily be there. In addition, serviced apartment and aparthotel operators have performed comparatively well through the pandemic and will be looking to build on this positive message moving forward.

While the industry is still several years from a full recovery, Covid-19 has acted as a catalyst for significant change within the hotel sector and there are exciting times ahead as we navigate the new normal.

Will Duffey, Head of Hotels & Hospitality, EMEA

This article forms part of our latest European publication titled ‘Investing in Living’. To download the full brochure, please click here.