As the old adage goes, “In business, the rearview mirror is always clearer than the windshield.” After a boisterous week at the International Hotel Investment Forum (IHIF) in Berlin, it’s safe to say not many in the hospitality industry are looking behind them, and yet hard not to wonder if the windshield, at least for some, is, indeed, not rose-colored.
It’s easy to get caught up in all the excitement. And why not? The hard data on ADR, occupancy rates, RevPAR, pipelines, transactions and ROI’s (for those exiting) are all very good. Arne Sorenson, CEO of Marriott International, summed it up best when he quipped, “2014 was one of the best years of all time, a year that I’d love to bottle and open on New Year’s morning every year.”
When more than 2,000 of the top global decision makers in tourism and hospitality from 72 countries are all enjoying the ride that was 2014 and predicting an even better year ahead—no one wants to be the one that asks to pull over and clean the windshield.
Questex Hospitality sent a team of editors to IHIF from Hotel Management magazine, as well as editors from our digital platforms and e-newsletters of IHIF Daily News, to do just that.
The following are three takeaways I came away from IHIF with.
1 THE SHARING ECONOMY CLAIMS HOTELS HAVE NOTHING TO FEAR…THEN TELLS THEM A SCARY STORY
Airbnb global head of hospitality and strategy, Chip Conley, in one of the most popular sessions, told delegates that Airbnb had “democratized” hospitality and that there had not been any downward pressure on hotel occupancy in the markets it operates in. However, according to a recent report by Boston University, a 10-percent increase in Airbnb supply results in a 0.35-percent decrease in hotel room revenue.
Nonetheless, hotel executives don’t seem to be all that worried by Airbnb, with most of the major brands claiming no visible impact on their operations from it.
If hotels aren’t impressed by Airbnb’s operating impact, perhaps its recent valuation of $20 billion may give them pause. At $20 billion, an Airbnb listing compared with that of a room in a traditional hotel makes it the second most valuable only to Hyatt, which generates the greatest value from each room. And what does Hilton think? Having taken nearly 100 years to reach a market cap of $27 billion, Airbnb is valued at more than two-thirds that in just eight years.
2 EVERYONE’S TALKING ABOUT MILLENNIALS WITHOUT ANYONE ACTUALLY KNOWING WHAT THEY’RE TALKING ABOUT
“Millennial” is the buzzword of the moment—with what seemed like nearly every session including at least one study or anecdotal reference to the generation of young adults born between 1980 and 2000. It’s no wonder why hoteliers are eager to capture them—a generation that in the U.S. already outnumbers the baby boomers by 11 million people.
The challenge in talking about millennials lies in the sheer number of stereotypes regarding them. Amid all the stereotypes, the one most often cited is technology. There’s no dispute: millennials are the first digitally native generation to be born. However, in hospitality, technology is not the destination. It’s a tool to a better customer experience. And all guests want a better customer experience, not just millennials.
Hotels often stock their rooms with enough technical gear to send a person to the moon. In other cases, lifestyle brands are citing design items like no closet doors, or functional decisions such as eliminating the business center. No mobile connected traveler has used a business center since 2004—that’s not a millennial issue, that’s common sense.
How much of today’s segmentation and brand expansion is driven by the hotel industry’s current hot streak versus a genuine understanding of and demand by millennials?
3 GOODBYE GOTHAM, HELLO CLEVELAND
Amid all of the positive exuberance at IHIF were some sage reminders of the cyclical nature of our industry. As we’ve seen, cycles rarely come bundled up in one package: What’s happening in Europe or the U.S. doesn’t reflect what’s happening in Russia or Brazil.
Predictions are for global hotel real estate transactions to reach $68 billion in 2015—a 15-percent increase on 2014 levels. Growth is being driven by a number of factors, most notably the quantity of cash in the market with pressure on private equity funds to deploy their funds. In addition, Asian money, driven by Chinese capital, is growing rapidly due to lowered barriers to investment by the Chinese government.
As our colleagues from the UK say, we’re already seeing some “froth” in the more saturated markets of London, New York and Paris. That is in turn pushing investors into secondary and tertiary markets and financing the launch of new brands and products (see my point about millennials above).
It will be interesting to see this migration play out as investors seek out better yields from markets they wouldn’t have considered just three years ago. There needs to be more innovation and financing in the economy sector, and hopefully this will be a shot in the arm for those owners and management companies that have long felt like they were operating in the shadows of the luxury brands.
There’s no doubt the global hospitality industry is firing on all cylinders right now. As we enjoy the ride, let’s continue to check the rearview mirror, keep the windshield clean and with all that sun in our eyes, exchange the rose-colored glasses for some more practical, yet still stylish, eye frames.