Between 11 and 12 September, more than 1,000 senior representatives from across the UK hospitality industry will head to Manchester for the Annual Hotel Conference (AHC).
This year’s speakers include: broadcaster and chef patron at La Gavroche Michel Roux Jr as well as senior representatives from Blackstone, Whitbread, KSL Capital Partners, and more.
The following interview is part of a series aimed at bringing you a flavour of the conversations you can expect on stage, highlighting some of the big-picture trends and themes ahead of the event.
Register now to make sure you don’t miss out.
The commercial real estate market is not a monolith. It's a point worth remembering when you read headlines about the problems in the sector. While retail and office might be struggling, hospitality has been on a tear since Covid-19 restrictions were lifted across the world. This improving performance has generated interest from investors who might not have been interested in the sector before or who perhaps thought it too complicated.
The challenge now is making sure the interests of these new sources of capital are aligned with other stakeholders. Ahead of appearing at the upcoming Annual Hotel Conference (AHC) we caught up with Matt Lederer, hotel acquisitions director at Castleforge, to get his take on the state of the market.
Hospitality Investor: What is your assessment of the real estate transaction market as we head towards autumn?
Matt Lederer: The UK hotel transaction market remains relatively subdued with only £825 million transaction volume reported in H1. The relative lack of comparable transactions leaves little for buyer or seller to point towards, during price negotiations. With a fairly significant bid-ask spread in some situations, this combination has led to several stalled processes. Market sentiment suggests potential for an improved second half of the year, driven by continued performance improvements, potential softening of yields and a more predictable cost of debt. Another aspect that may come into play is property improvement plans. Many of these had deadlines extended, by the various brands, during Covid. A requirement to invest in an asset, at a time of higher financing costs and macro uncertainty, may trigger some transactional activity.
Hospitality Investor: Is it a case of not enough on the market or the bid-ask spread being too far apart?
Matt Lederer: There have been relatively few opportunities on the open market, with sellers generally opting for targeted ‘off market’ processes. Those coming to market are generally doing so in line with business plan and there is little stress / distress in the market. This has led to a fairly significant bid-ask spread, as buyers adopt a cautious approach, while also factoring in higher debt costs.
Hospitality Investor: Your session at the AHC is looking at new types of capital in the market. Why do you think they are eyeing hospitality?
Matt Lederer: The market fundamentals are strong, since 2000, 375 million people have entered the global upper-middle class – this continues to translate to increased tourism spend in Europe's most popular destinations. Historically hotels have also provided a good hedge against inflation and that continues to be the case. In addition, other asset classes are being more heavily impacted by market demand changes and the macro-economic environment.
Hospitality Investor: The theme of this year's event is ‘Adapt to Thrive’, can you give me one example in your business or otherwise, where a new and innovate strategy has been implemented to capitalise on an emerging market opportunity?
Matt Lederer: At Castleforge, our research-based investment strategies enable us to identify long-term global trends and tailor our approach accordingly. Due to tougher market conditions, this has become more crucial than ever before, and investors are looking to identify specific assets with competitive advantages.
One area where this approach has proved particularly successful has been the expansion of Ocasa, Castleforge’s residential operating platform, where we identified a gap in the market for significant value creation.
The UK is facing an enormous shortfall in housing supply across almost all sectors, with extensive waiting lists for social housing and many unable to rents in the private rental sector. Castleforge saw a clear opportunity for a professional landlord that provides well-managed and amenity-rich living at affordable rent. Ocasa caters for this opportunity by providing high-quality housing, through co-living arrangements, that bridge the gap between social housing and private rental properties.
Ocasa also focuses exclusively on regional cities, where the lack of affordable worker housing close to city centres is particularly acute. This approach has enabled Ocasa to capitalise on a significant market opportunity, while also helping to alleviate some burden on the UK’s overstretched social housing system.
Matt Lederer, hotel acquisitions director at Castleforge, will be speaking on a panel entitled: Tailor-Made: Are Operating Agreements Becoming More Bespoke?e at this year's AHC.
Stay tuned for more preview interviews and if you still haven’t registered yet, you can do so here. You can also view the latest programme, here.