At the Annual Hotel Conference, Oct. 12-13 in Deansgate, Manchester, David Bailey, senior director EMEA for CBRE Hotels, is presenting an overview of key UK hotel markets. "Analyzing the relationship between demand and supply, Bailey leverages the expertise, data and analysis from within the CBRE Hotels team to drive transparency in the sector and spark debate among the operator and investment community alike."
In his session, Bailey will discuss such game-changers as the European referendum, the U.S. election and the new national living wage.
Bailey spoke with HOTEL MANAGEMENT about the future of UK hotel investment. Earlier this week, he discussed the Brexit, new supply and Airbnb. Here, Bailey discusses the push for a national living wage, how the U.S. election is affecting Britain's hotels and how the hotel brand that bears the name of the GOP Presidential candidate would fare in the UK.
1) Are you seeing—or do you expect to see—any pullback in hotel investment, in cross-border investment and what do you think about transactions? Will hotels trade at a lower rate as we through 2016 and into 2017?
Bailey: In London, we have limited stock available for investors, and the membership of the EU is one of a range of factors that makes the UK—London in particular—a very attractive place to invest. Many of these investors are really long-term holders, and the fact that trade has remained strong and the fact that supply has remained scarce and financing costs have remained low [creates] preserved value.
We had a lot of portfolio activity through '13, '14, and '15...I think some good returns have been made, so there certainly hasn't been there a collapse in value. Far from it, but like I say, it's an unfolding story and obviously subject to investor sentiment.
2) There are so many business organizations lobbying the government to restrain future increases in the hourly wage. How is that going to impact, or how could that impact, the industry?
Bailey: Payroll is the biggest single operating expense the hotel encounters. If you look at the overall operating costs, it's probably north of 50 percent of all costs. It is huge. It's a labor-intensive industry. That's why budget hotels are so attractive, because they're so skinny in terms of their operating. Anything that happens around labor—availability of labor, cost of labor—is hugely important. I think there are concerns about the effects of those increases at the bottom, and that half-true payroll structure, if you like, is a cause for concern.
Against that, there's constant drive to innovate and engineer the way in which we interact with guests and to enhance productivity. That's a positive. There's a lot of creativity around that.
Let's raise the minimum wage, because we should be attracting really good talent. We need bright motivated people. As an industry, that's what we should be doing. We should be creating those jobs and creating the environments where that works—and you'd think that would be a virtuous cycle, but there might be some hard-pressed hotel there in the provinces, maybe in Derby or somewhere, in Lincoln or Leeds or whatever, wherever—they might be thinking, “Hold on a minute. That might be easy for you in London, but not here where I am.”
3) The U.S. will elect a new president in November. What are your thoughts on the election? What do you think that could bring? How could it change the landscape in what's going on in the UK—if at all?
Bailey: I haven't appreciated, when I was looking from the outside and seeing a choice between Trump and Clinton, I hadn't appreciated the strength of ill-feeling toward Clinton to the extent that Americans seem to think, 'This is a really bum choice between Trump or Clinton,' and looking from the outside, it looked like it must be an easy decision. That was quite a revelation, I think, of what an awkward and difficult choice the election presented. Americans I am talking to over here are having a real dilemma as to how they would vote, or in fact whether they would vote at all, which is an appalling thing to contemplate when you think about the blood and treasure that goes into ensuring that people have the freedom to vote.
What we have found historically in the London market is when a U.S. presidential election is on, Americans tended not to travel and that might be registered in the high-end hotels in London in particular. For the full-service and high-end [occupancy ratios are] probably 80-percent international, 20-percent domestic, and the reversal would be true in the provinces. When Americans don't travel, that's not great news for high-end hotels in London.
Against this backdrop, we've had a phenomenal appreciation of the dollar against the pound or depreciation of the pound against the dollar, depending on how you want to look at it, which means that London is financially an attractive place to visit. [This is] because of the many ties that unite and bond us and the shared history, curiosity, everything, and the fact that we are relatively safe. One doesn't want to be complacent when you contemplate what Paris has had to endure, and so far we've been fortunate in avoiding that. The UK will be and remain a very attractive place for American businesses.
Back to your point, if the American economy thrives, that's good news for us. If the exchange rate stays where it is for Americans, that's got to be good news. At the very far extreme, if Trump does his worst and carries out some of his threats and the world becomes a much less stable, predictable place than it already is, it's already pretty damned bad, then that's not going to be good for anybody anyway, though I suspect he's probably a very crafty individual who will be playing a message at certain times when he's got his eyes very firmly set on his objective and will be probably quite different when he gets there. If he gets there. I don't know if it's a cataclysmic outcome, but we genuinely want America to do right by itself and do well.
4) How do you think a Trump hotel would fare in London?
Bailey: I don't know. Would it trump the others? I don't know. It would depend what it is, where it is, who's running it. It's just about location and good hotel-keeping. The name will get you so far. People might try it once, but if you're not a good hotel, they're not going to come back.