Rosewood, Deutsche Hospitality prepare for the future

The International Hotel Investment Forum (IHIF) takes place March 4-6 at the InterContinental Hotel, Berlin. Photo credit: Questex (IHIF 2019)

During the "Adapting to Survive & Thrive: Hear from the CEOs Leading the Change" panel at the upcoming International Hotel Investment Forum, five hospitality CEOs will share their visions on how global hotel groups are adapting to changing economic conditions, travel trends, operational requirements, labor markets and more. How well do they know their customers, how can they serve their needs better? What can brands deliver in the future? 

Ahead of the conference, two of those CEOs shared their insights on the future of the hotel investment market, how their companies are growing and the challenges ahead. (David Kong, CEO/Best Western Hotels & Resorts, who also will be on the panel, already gave his perspective on these questions earlier this week.) 

1. How would you describe the hotel investment market in 2019? 

Sonia Cheng, CEO/Rosewood Hotel Group: Our perspective on the global hotel investment market is varied and influenced by our geographic spread and the types of hotels we operate. 

Globally, while there are many things we could be worrying about in 2019, we remain optimistic. We concluded 13 new deals in 2018 and are going into 2019 with no less than 15 advanced transactions. So we expect 2019 to be as good as 2018, if not better, building on our foundation of Rosewood Hotel Group’s current portfolio of 64 hotels in 23 countries. 

North American markets have been performing strongly for us. The U.S. hotel market might still experience its 10th consecutive year of growth in 2019. Tax law changes, capital spending, wage growth—all this has been helping the industry. We have a robust pipeline in the U.S. This February, we opened the Rosewood Miramar Beach in Santa Barbara (Calif.) and have recently signed deals in Houston and Hawaii. We are very close on a project in San Francisco and continue to discuss opportunities in other cities such as Miami, Chicago and Toronto. We are seeing a lot of traction for our new brand, Khos, and are in advanced discussions for it in key cities across North America—including New York; Los Angeles; Washington, D.C.; and Mexico City. 

Europe shows a more mixed picture. We think there will be more institutional investment coming into Europe in 2019, and we ourselves are busy divesting and reinvesting our efforts in Europe. The U.K. has been in the news a lot due to Brexit, but so far we do not think this has adversely impacted the hotel market. We do feel, however, that the U.K. may have passed its peak already. On the Continent, Amsterdam has risen as the top destination for investment in Europe and we are looking forward to bringing the Rosewood brand there. Spain, Greece and Portugal are still attracting investment, and until recently we were very happy with how France was evolving. Our pipeline is strong in Europe, with projects in London, Munich, Vienna and Venice (Italy), and we are very active in other strategic cities such as Rome, Madrid, Istanbul and Barcelona (Spain). 

Asia also provides an interesting hotel investment outlook. Supply growth in China has been slowing, but this is helping improve performance in key markets, while second-tier cities are now rising in importance. The U.S./China trade frictions do give us cause for caution, but we think we will continue to grow steadily in China, especially with the Penta brand. As a group, we have a long history and a unique perspective in China. We currently operate 12 hotels in China across our brands and have a healthy pipeline with 10 projects under development, including landmark Rosewood deals in Shanghai, Chengdu and Shenzhen. There is some concern about a slowing Chinese economy, but our long-term perspective is very positive. This is driven by continued urbanization, rising incomes and change in customer profiles. We are excited with our unique positioning and understanding of the Chinese travelers and the resonance of the Rosewood brand. Outside of China, our brands are attracting interest across Asia. In 2019, we are scheduled to open our flagship Rosewood Hong Kong in March, which comes on the heels of our recent openings in Sanya, China; Phuket, Thailand; Luang Prabang, Laos; and Phnom Penh, Cambodia, and ahead of significant openings for Rosewood in Bangkok; Yangon, Myanmar; and Guangzhou, China. Across the brands, we had a great year in 2018 with additional signings in Taipei, Taiwan; the Philippines; and Jaipur, India. We see rapid growth in Vietnam and have a focused strategy to enter strategic markets such Australia and Japan. 

Thomas Willms, CEO/Deutsche Hospitality: 2019 will be an important year for our industry. Major European cities will be facing the end of the growth period due to the high level of hotel property prices and the increase in development costs. Low interest rates will still support brand acquisitions and/or hotel real estate purchases. Brexit and its impact on our industry, especially the exchange rate changes are still uncertain. In Spain, Portugal, Italy and Greece, we see branding and investment opportunities in some major cities and as well as in leisure destinations, taking into account the real estate and hotel market improvements    

2. What is Rosewood’s position and strategy for the year to come? 

Cheng: Rosewood Hotel Group is a family-held, private hotel business, part of a USD$30+ billion conglomerate of companies, with four distinctly positioned brands. We are committed to the concept of “relationship hospitality,” a belief that true hospitality springs from the nurturing and building of strong and lasting relationships with our associates, guests, owners and the communities in which we operate. We are innovation-led; everything we do is guided by a vision to inspire imagination, enrich lives and discover the uncharted. Relentless innovation gives life to our distinctive brands, and we seek to build emotional connections with our guests through beautiful design and thoughtful programming. 

As for our strategy in 2019, we are focused on continuing the Rosewood brand’s selective expansion in the luxury segment into key gap markets with high-value transactions, including urban hotels, resorts and unique boutique properties. We see a great opportunity to further strengthen Rosewood’s residential business and will be adding dedicated resources in 2019 for this specific pursuit. Rosewood now includes 24 operating properties with close to 30 additional hotels in the pipeline. We are very excited about the launch of Khos, our new luxury lifestyle brand, and are focused on concluding foundational transactions in the U.S., Mexico, Israel, Vietnam and China. Our aim for Khos is to grow to about 15 hotels in the next three to five years, but 2019 will be the brand’s key launch year. For Penta, our focus is on China—we think the brand has a unique design proposition that we are hoping to scale in China over the next few years, adding to our existing locations in Beijing, Shanghai, Chengdu and Hong Kong. So we are busy now building the team and the resources needed for this growth plan. For New World Hotels, we continue to expand the brand in Asia and we are considering opening the brand (as well as Penta) to franchising in Asia. 

3. What is Deutsche Hospitality’s position and strategy for the year to come?  

Willms: As Germany's leading family-owned hotel group, we will continue to strength our brands and differentiation efforts. Our urban lifestyle brand "Jaz in the City" is maintaining good momentum.  

The recently introduced conversion brand "Maxx by Steigenberger" is specially tailored to franchises, which is a relatively new market segment with great potential for us.  

We will continue the international success of IntercityHotels, especially in the Middle East.  

And finally: The Steigenberger brand will undergo an evolution in 2019, which will be supported equally by solid investments in hardware and software. More exciting news will follow in the coming months.  

In terms of development, we want to expand the portfolio into Southern and Eastern Europe and concentrate on the franchise opportunities of Maxx by Steigenberger and IntercityHotels in the Central Europe region.  

4. What are the biggest challenges faced by hoteliers/investors in the current hotel investment market? 

Cheng: The hotel business is fundamentally about people and as a growing industry one of the biggest challenges we face is talent deficit. The scarcity of talent is a major challenge, especially in fast-growing markets such as China. 

The hotel world is also becoming overcrowded with brands that are difficult to differentiate. We want to remain distinct and differentiated, but as our business grows, we need to be astute about how we scale authenticity and how we “standardize” uniqueness. We continuously review our existing brands to maintain their distinction and we are also innovating new concepts to prepare us for the future. Khos is an example of this: After nearly four years of research and planning, we are ready to roll out a concept that taps into key and unmet needs of today’s new generation of travelers. 

Also, we need to keep our eye on where growth will be coming from five to 10 years from now. For example, millennials have been the focus in the past several years but in the future the 60+ age group will triple, and they will be looking for travel experiences that suit their needs. New locations are emerging in places like Africa that remain new to us. Rapid urbanization will continue to put pressure on real estate prices, development costs and space utilization. All this requires us to think ahead and develop concepts that will suit future needs and expectations. 

Willms: As a hotelier, our biggest challenge is still the [human resources]. We need to think differently and take extra steps to invest in human resources over the next few years. The increase in land and construction costs will continue to make it difficult to find the right property for a reasonable purchase or lease price.  

5. What existing hotel brands do you think are most interesting to watch? 

Cheng: Although we see so many brands in the industry, we see a few new concepts and brands emerging globally that are very inspiring and that are turning the industry in a new direction. We see various versions of hotel concepts adapting to the sharing economy and giving rise to mixed hotel co-working/co-living ideas. In Japan, I love the interesting design philosophy behind Fujita Kanko’s new brands, for example. We are also looking at China as a source of inspiration because of the accelerated adoption of technology with platforms like WeChat, as well as its rapidly changing demographics. In Europe, we have seen the creation of intriguing concepts, for example Zoku in Amsterdam, or The Hoxton—which speak to the idea of creating a sense of community. What makes all of these new concepts noteworthy is that they remain authentic to creating a sense of place (which is one of the tenets of the Rosewood brand), while also creating a sense of community. This is something that resonates strongly in a world where technology enables us to live very mobile lives, which elevates the guest’s need for unique experiences, genuine authenticity and relationship building. I think the direction we are headed to is towards creating brands that combine these three ideas of sense of place, community and connecting with others in a meaningful way. These are the brands that will thrive in the years to come. 

Willms: Mergers & acquisitions and global distribution will be very interesting. I'm sure there will be more.  

Also interesting is the trend of the brands: budget, hostel and living and working concepts. Square meter optimization is the answer to increased real estate and construction costs, so existing brands need to be adjusted and new brands might get more footprint. 

6. Who or what is the biggest inspiration guiding your career? 

Cheng: My father and my grandfather. They gave me two bits of advice that have shaped who I am as a leader and a person: be humble and invest in people and relationships. In some ways, hotels are in my blood: my family has been in the hospitality business for many years and across different aspects of the industry, from developing hotels—we were one of the first to open an international five-star hotel in China, to operations—my father spent time as a hotel general manager and we lived right next door to a hotel; coincidentally, in the location where Rosewood Hong Kong will be opening in March. 

Prior to taking over this company, I worked in the real estate divisions of several private equity firms, where I evaluated investments in hotels and office and residential buildings. This was valuable experience that provided me an essential financial foundation that is beneficial to my current role. 

My personal experiences and travel preferences also help inform some of the strategic innovations our brands have undertaken recently. Whether as a busy executive, a mother of four, an aspiring wellness aficionado or a dedicated foodie, taking on a guest’s perspective enables me to break out of the mould of tradition and hopefully respond in an authentic way to the changing needs of evolving types of travelers. 

Willms: I grew up in the hotel industry. My family was and is my biggest inspirer and motivation. However, I had the privilege of working with great leaders like Roeland Vos or Barry Sternlicht at Starwood Hotels & Resorts Worldwide.  

7. What are you most looking forward to at IHIF? 

Cheng: Well, first of all, this is my first time attending this highly visible conference, and I am particularly thrilled to have an opportunity to have the ear of such a wide segment of investors and advisors. In Europe, we have a lot going on and will open seven new Rosewood hotels in the region over the next five years. But we still see tremendous opportunity for expansion. There are a number of capital cities that we hope to add to our portfolio as well as various resort gaps we must fill. We also hope to launch Khos, our new luxury business lifestyle brand, in Europe. We believe Khos will have good traction here as we have seen already in the Americas. In particular, space is at such a premium in Europe that we think the Khos brand’s approach to space utilisation will make it a winner. Ideally, I would love to leave IHIF having met 10 new potential investors or investment partners for any of our brands. 

Willms: Personally, I am looking forward to meeting my colleagues and friends of the industry in Berlin.  

Professionally, I am proud as CEO of the evolution and accomplishments of Deutsche Hospitality in the last 12 months. That's why I'm here to present perhaps the best Deutsche Hospitality and its brands that you've ever seen.  

8. You are taking part in the Global CEO Panel–‘Adapting to Survive & Thrive,’ which will discuss many elements including adapting to changing economic conditions, travel trends, operational requirements, labour markets etc. One significant area to be discussed is the value of brands for the future. What are your views on the role of hotel brands and their relevance to the next generation of travelers? 

Cheng: In 2008, I became CEO of New World Group when I was 29. Since the acquisition of Rosewood Hotels & Resorts in 2011 and [rebranding of] our group as Rosewood Hotel Group in 2013, I have been thrilled to see our business becoming a truly global one now. In the current era of big brand consolidation, I think there is a unique opportunity for a group like Rosewood because we have sufficient global scale and a dynamic growth path, which still allows for a bespoke and personalised approach to building our brands, creating iconic hotels and nurturing relationships. 

There is a Chinese proverb—“change is the constant”—which applies very well to today’s competitive hospitality market of traditional big players and boutique brands. Aside from expanding our global footprint, we maintain top focuses on driving innovation, creativity and true understanding of the evolving needs of our guests. I believe the key to our sustainable success is not only to keep up with the status quo, but stay ahead with elements of surprise and innovation that continue to raise the bar. 

Willms: Continuously focus on the needs of the travelers, new trends, by creating environments to fulfill our guests and our associates needs are the key to maintain and increase the value of the brand for the future. Together with our strong partners and owners, increasing our presence in key markets is also very important to remain competitive.   

Willms and Cheng will be speaking on the Global CEO Panel: "Adapting to Survive & Thrive: Hear from the CEOs Leading the Change," 10:40 a.m. – 11:30 a.m. on March 5 during the International Hotel Investment Forum (IHIF) which takes place March 4-6 at the InterContinental Hotel, Berlin. IHIF is presented by Questex Media, the parent company of Hotel Management Magazine.