Berlin — In a world beset by macroeconomic headwinds and geopolitical tensions, the hospitality industry is at the “sweet spot” to be able to provide “unforgettable experiences”, according to a leading economist, speaking at the International Hospitality Investment Forum (IHIF) in Berlin.
The hospitality sector has often outperformed after moments of crisis, and factors including the future of work and the importance of cities should translate into opportunities for industry players, Professor Ian Goldin, Professor of Globalisation and Development, Oxford University, told host Jonathan Langston, chair IHIF Advisory Board, Questex.
Goldin opened by hailing the end of the pandemic and a “boom time for hotels” as the importance of “quality experiences” crystalised for consumers. “We see the fragility of the world, war in Ukraine, pressures in China, and the psychological impact of Covid-19 as a permanent legacy of the pandemic”.
However he warned that the resultant “sticky inflation”, which has pushed up interest rates, altered the availability of finance and changed the outlook for capital markets was here to stay at least until 2025. “We can expect the impact of the war in Ukraine to underpin energy prices and food prices for a long time… and the war will last a long time”, he said.
On top of that, climate change, demographic shifts and changing travel trends needed to be reconciled with the “incredible moment for the hospitality industry right now”. Goldin put this down in part to “revenge spending, pent up savings, and the $22 trillion dollars in government gifts issued during the pandemic”. The rise of ultra-high net worth individuals was also part of a growing “inequality trend”, he noted. On top of that, the resumption of business travel and events was also feeding hospitality’s impressive recovery to “at least 2019 levels”.
Experiences that last
Yet for the industry’s success story to be sustainable, he underlined that guests would want experiences that would “last with them for a really long time”. That meant that the “quality of the experience, the uniqueness of the experience, the ability to broadcast it on social media” became more important than ever. Underpinning that, finding and retaining high quality personnel in the midst of a “war for talent” and high wage prices would remain a significant part of the challenge.
Alongside the impact of consumer behaviour, Goldin noted that matters of climate would become more and more “driving forces” for the industry. He asked operators and landlords to examine what was their footprint and how quickly they thought they could reach net zero, adding: “What is going to happen to aviation? Do you trust the offset system? I don’t.” He also warned about the territorial risks of rising sea levels and rising temperatures making destinations no longer viable.
Against this complex backdrop, Goldin signalled that the inequality of wealth – with significant amounts in the hands of an older demographic – and the continuing story of populism would add a political dimension to the future world order. “Trump and Brexit would not have happened if it were not for the global financial crisis, and the inability of the world’s economists to manage that”, he noted. “And going forward, the sense that the elite doesn’t have the interests of ordinary people at heart leads to political anger, which is set to continue”.
Creative Renaissance
Despite all these factors, Goldin likened the current age to the Renaissance, with its intense creativity and the right climate for knowledge breakthroughs, paving the way for ongoing hospitality success. He told Langston: “Investors need to look at the returns and look at the room rates and realise that this is the time. The return on real estate is lower than that on hospitality; the logistics sector has had its day. I am surprised that there are not more investors piling into hotels.
“The bright spot is going to be in dynamic locations in Asia, such as China and Indonesia, but I remain bullish on Europe, and hope that they don’t follow the US down the path of making Chinese visitors feel less welcome.”
Goldin is a professorial fellow at Oxford University’s Balliol College. From 2006 to 2016 he was the founding director of the Oxford Martin School and currently leads the Oxford Martin research programmes on technological and economic change, the future of work, and the future of development.