I'm just back from being in Berlin. You read that right. And like the Beatles once sang about being back in the U.S.S.R, we don't know how lucky we are.
The International Hospitality Investment Forum is an annual forum and beacon for the global hotel industry. This year, it attracted more than 2,300 delegates to the InterContinental Hotel in Berlin, where conversations flowed, deals got done and trends and topics were bandied about amid a score of panel sessions.
It was a welcome back to normal after an interceding pandemic put the conference on ice or, rather inconspicuously, forced it virtual. In a digital world, conferences are a vestige of the analog era and render with difficulty through a computer screen.
With the pandemic, a war in Ukraine and a host of other variables, from labor to inflation, serving as a backdrop, this year's IHIF was a conclave trying to make sense of the tempest.
As it is, many are riding the storm out without taking on too much water. Deal flow has picked up with $66.8 billion worth of hotel real estate exchanging hands in 2021, according to JLL, a 131-percent increase over 2020. This year could be a banner year for transactions with hotel real estate seen as a hedge against inflation.
"In 2022, the make-up of demand and the progression of the recovery will continue to be top of mind for hotel owners, operators and investors," JLL wrote.
Sustained Notion
JLL also namechecked ESG, or Environmental, Social and Governance, as something evolving beyond corporate bombast and into actual practice. It points out that failure to commit to both short- and long-term sustainability goals have the potential to decrease asset value, increase operational costs and discourage consumer demand.
ESG was a central theme at IHIF and I'm convinced that the hospitality industry takes it seriously. I'm not convinced they know yet how to deploy it effectively and fold it fully into the fabric of business. Right now, they are good at talking about it. But they need to figure it out—and fast. Patrick Fitzgibbon, SVP development Europe, Middle East and Africa at Hilton, said at IHIF that both customers and employees expect hotels to be making progress in ESG and that more customers are making buying decisions based on it. “It’s not just one or two—this is the majority of corporate clients,” he said.
Said Gaël Le Lay, deputy CEO of Hova Hospitality, "ESG is essential for any investment."
David Kellett, managing director of hotel transactions at Invesco Real Estate, highlighted that in the UK, for instance, all nondomestic rented buildings will need to meet the Energy Performance Certificate by 2030.
“That’s seven-and-a-half years away; that’s not very far," he said. “We will start to see deals that don’t get done because assets will be stranded."
One of the true mavericks of the hotel industry, Sébastien Bazin, CEO of Accor, is a huge proponent of ESG, so much so that he recruited and appointed Brune Poirson, a former member of the French Parliament and Secretary of State for the Environmental Transition, to the role of chief sustainability officer last year.
Accor has committed to being net zero by 2050 with initiatives that include electrifying its hotel energy systems, installing low-energy-consumption LED lighting at sites and eliminating guest-facing, single-use plastic by the end of this year. To be sure, steps like these are attainable and, quite frankly, could have been implemented before. Beyond that, 2050 is nearly 30 years from now; surely the industry can act faster.
Hotel design has major ESG implications. A recent New Yorker article, appropriately titled "Transforming Trees Into Skyscrapers," discussed the notion of developing buildings today out of wood rather than legacy steel and concrete. Called glulam, short for “glued laminated timber," it's an engineered product in which pieces of lumber are bound together with water-resistant adhesives—and it meets fire standards. Hotels are already trying it out, including the HoHo Hotel in Vienna, which is made of 75 percent wood, with the interior walls and ceilings composed of spruce.
Hilton this month will open the Hotel Marcel in New Haven, Conn. Part of its Tapestry Collection, it's billed as a net-zero hotel and entirely electric. It will use renewable solar power to generate energy for the hotel’s guestrooms and suites as well as for public spaces. No fossil fuels here.
Mo Money ... That's a Problem
In the dark days of the pandemic, the lucky hotels broke even; the unlucky posted massive losses. In the rebound, profitability will be a central theme, casting revenue in the same realm of importance as expense. Hoteliers now have a quiver full of hotel metrics to consult, with a closer eye on data that elucidate full operational performance beyond sole revenue.
At an IHIF panel session called "Getting Back to Profitability," Margarida Almeida, CEO of management company Amazing Evolution, said that though they are always focused on revenue—and need to be so—more attention needs to be paid to line-item costs. She called it a mindset shift. "Revenue is not everything. What matters is the profit. We need to look at other metrics to define different strategies to get back to profitability," she said.
Rob Hornman, CEO of Flemings Hotels Group, said it was now as much as 30 percent more expensive "to produce hospitality," as he phrased it. He noted the strong post-2008 recovery, an upcycle that lasted a decade. He is less sanguine now. "We are confronted with a market that has disappeared," he said. "And we have to pay more and our customers are not necessarily ready to pay for it, especially on the corporate side. We have to find a way to express that things are costing more money."
Costs across the board are escalating, from labor and utilities to the everyday products hotels need to service guests. One of the ways hoteliers try and manage those costs is by increasing room rates and other ancillary services on the customer base. Since hotels can reset rates on a daily basis, the business is a strong hedge against an inflationary environment. And though customers might understand the hurt many businesses are going through, are they willing to foot the bill?
Meanwhile, though rooms remain the largest driver of hotel revenue, Niels Schroeder, CEO of BI platform Fairmas, said more attention should be focused on total customer value and the entirety of ancillary revenue streams available at hotels, from food and beverage and spa, to parking and retail. "It's too easy to just say 'raise rates,'" he said.
Investment Now and Afar
The hotel industry is in a correction period, still finding its footing after coming back from the dead. The pandemic is an opportunity for a reset and for hotels to get a better grasp of their business by turning to such relics as zero-based budgeting.
On the investment side, there is no shortage of buyers in the market for hotels—it's a real-estate appreciating, income-generating asset class that serves as an ideal hedge against inflation. What's not to love? Consider this transaction in the U.S.—large institutional investors are on the hunt for prime assets. The only question is if sellers are ready to part.
What's not in doubt is the hotel industry's zeal, on fine display in Berlin at IHIF. Like Mark Twain once said, "I don’t believe there is anything in the whole earth that you can’t learn in Berlin, except the German language."