After almost two years of living through the Covid-19 pandemic, hotel investors are cautiously optimistic that things will improve during 2022. The deal flow has been slower than many people anticipated with little distress. There’s a suggestion that this might all change over the coming months and with that in mind we gathered together a range of stakeholders for our first IHIF Advisory Board meeting of 2022 to take the temperature of the sector.
Here are a few things we learned from listening to senior figures from across the industry.
1. Money still needs somewhere to go
It’s been a recurring theme of the last two years: investors have raised a tonne of money but haven’t managed to deploy it yet. That’s not due to a lack of trying. In the hotel sector there is still some disagreement over pricing with sellers not needing to offload cheaply because of government support. Things look likely to change this year with creditors being more aggressive. Yields are pretty low in the office and logistics markets so hotels are still attractive.
2. Lenders warming up to hospitality
In 2020 at the very beginning of the pandemic many traditional lenders took a critical view of the hospitality sector, making it harder for those borrowing money to get a good deal on debt. Things are changing now with a little bit more optimism entering the market. Those investors looking to do more or bigger deals should find things a little easier in 2022.
3. Time for cost cutting is over
Owners and operators have done a pretty good job of making their businesses leaner and cheaper to run. They didn’t really have a choice, after all. Now though, there’s not much left to cut, which means turning to CapEx to add value. This might mean upgrading the facilities, repositioning it within the market or switching distribution strategy away from tour operators to a more direct approach. Covid-19 has accelerated many trends in the market and many hotels that could cater to the modern consumer are unable to do so.
4. The labour problem isn’t going away
Repositioning a hotel, however, isn’t necessarily easy or cheap. The backdrop now is one of rising inflation pushing up the cost of raw materials and labour. Even before the pandemic the hospitality industry was having a hard time keeping an retaining staff, thanks to a negligent attitude to pay and wellbeing. Last year Accor CEO Sébastien Bazin said the industry was on its knees because of staff shortages.
5. Changing consumers
One of the big differences between the pandemic and the global financial crisis is that many middle-class westerners have been shielded from the worst thanks to government-backed furlough schemes and other measures. This has left them able to keep spending on luxuries like travel. Restrictions on going abroad have only increased the desire for foreign holidays. That’s why many owners and operators are happy to reposition properties. They think consumers will be happy to spend more after the misery of repeated lockdowns.