In Sync 2

Crisis ‘accelerating trends’

Investors and operators in the adjacent space to hotels saw the pandemic accelerating existing trends, attendees of In Sync heard.

The panel bucked the thinking of many observers in backing hostels, pointing to demand from young, value-conscious travellers who were less affected by the virus.

Laura Brinkmann, VP, Brookfield, told attendees: “I would expect to see the hostel sector bounce back sooner rather than later.

“The winners in Covid response will be those who manage to navigate the landscape to allow for social distancing rules and to allow for assets to operate. There is a large part of the population that it not at risk of Covid, the young travellers who have had to make such sacrifices will be the first to rebound as governments lift travel restrictions. Medium to long term, hostels, serviced apartments, those catering to young travels or the leisure space are likely to be winners.”

Puneet Kanuga, head of hospitality investments, Queensgate Investments, agreed, adding: “The median age of our guests is 24 and these are the guys who are less impacted. We are still in touch with customers and they can’t wait to come back. There will also be a flight to value and our accommodation is very attractive. We’re in 10 different countries and we feel that this is temporary, not permanent.

“Nothing changes, this is a short-term issue, it’s not that demand for hospitality is changing. The sector will come back - new entrants to the sector will probably pull back a bit. In the next nine to 12 months we’re going to see a lot of attractive options coming to market as performance drops off. People know hotels, they know hostels, this is not the time to fly off to more exotic structures.

“Hospitality is about people. The real estate is nice, but it’s a way to showcase hospitality, at the end of the day it’s about people. Europeans will be quicker about returning to a normal state, but the UK and US costumers may be more fearful. I don’t believe in a shorter length of stay, I think length of stay will increase for serviced apartments and, for business guests, may stay longer. I see a bright future for serviced apartments.”

The idea that trends already seen in the sector were being accelerated, rather than seeing step changes in strategy, was shared across the panel. Peter Heule, CEO, Short Stay Group & Yays, said: “The crisis is accelerating trends which already existed in our industry. We will see less distance between guests, more digitisation. We had seen more grab and go, more housekeeping protocols where guests had the choice to have more or less. Other trends such as gong cashless will benefit owners and customers alike.

“We will not change our operations drastically and investors will continue to see this hybrid as an interesting place to be.”

Investor interest was not waning, with Brinkmann in particular eager to act, commenting: “This is an attractive and opportunistic time. Pre-crisis we struggled to underwrite, From an investor perspective it makes out business plans easier to execute if the pricing is adjusted. Always keen to find serviced apartments in key gateway cities - send them my way.”

David Kellett, senior director, hotel transactions, Invesco Real Estate, added: “We have gone right back to the start of the cycle. Invesco is on the core side, buying single assets one by one and this to me is a great opportunity to continue building that portfolio. We will continue to buy assets in the big cities. At the moment investors view the sector as risky, we need to package it up to be less risky.

“I would expect the hotelification side to continue. The hotel world will have to respond quickest to the distancing measures which go so against what the hospitality sector stands for.”

 

Insight: One of the strongest messages to come out of In Sync was that this is an industry ready and eager to get back to work and confident that there was demand for what it produces: hospitality. The other was this is a nimble sector, ready to adapt. IHG CEO Keith Barr spoke of the need to re-segment hotels to adapt to changing customer demand and the market is ready to swivel towards wherever the sun shines.

This is not to say that times won’t be hard. Kike Sarasola, president & founder, Room Mate Group, said: “If you can be profitable at 30% I’d like to hear how”.

And this will be the challenge for the market. Hotel operations are set to change, possibly permanently. The first shift will be towards cleanliness, but none of that will work - no hotels will open - unless that can be done profitably. What is heartening to note is that the adjacent spaces remain relevant.