In hospitality, differentiated product has never been harder to achieve

At the 21st International Hotel Investment Forum (IHIF) in Berlin, Andreas Ewald, managing partner of operating hotel consulting firm Engel & Völkers, will moderate a session entitled "State of the Art Underwriting." 

The session will examine what metrics investors use to make their investment decisions, and discussion will focus on how to leverage data to support those choices.

Ahead of the conference, IHIF spoke with Ewald about industry disruptors, top destinations and what 2018 will hold in store for hotels around the world. 

1. What hospitality trends and storylines will dominate discussion at IHIF and why?

Due to the diversity and number of stakeholders, this industry has always been affected by a broad range of factors. Geopolitical turmoil, terrorism, socio-demographic change, technology and big data will continue to shape the general outlook and market mood. The customer-centered discussion will focus on how to reach visibility, bookability and flexibility in an increasingly competitive market environment.

From an investment point of view, the apparent lack of product, as well as high market prices, will dominate. As a result, I expect an increasing need for developers, operators and investors to apply meaningful due diligence and underwriting processes in order to profit from low-yielding deals.

2. What are the markets/countries that you looking at for future development and what makes them an attractive investment?

Germany will remain the strongest market in terms of macroeconomic stability and tourism potential, as well as its attractive B-to-D markets. Also, the UK has managed to lead the way [in spite of] all Brexit discussions. Spain has [benefitted] and will benefit the most from geopolitical turmoil in Turkey and North Africa.

Other Mediterranean markets also bear potential for leisure products. Markets such as Greece and Croatia might rise up again and also Italy needs more investment to revitalize its hotel landscape. We see a tendency that hotel resorts shift into the focus of investors, and even institutional owners are looking into the asset class. However, key metropolitan markets will still be the driving investment spots in the future.

3. With so many brands in the marketplace, what makes them a success and are they differentiated enough in the market? Do both customers and developers understand the differences?

We experience the blending of segments where hotel concepts blur the lines between midscale and upscale categories. Design-, technology- or community-driven concepts keep entering the market and steal the market share of established brands and hotel groups. The need for differentiation has never been larger, yet it has become more and more difficult to clearly differentiate yourself as a hotel product towards the customer. As mentioned before, the ability to provide visibility, bookability and flexibility is key to a successful concept. The leading players focus on a high quality of basic services and combine it with the right degree of meaningful technology. For developers, understanding the brand or, more importantly, the operator is key for a successful project. Hotel investments will always depend on the ability of the operator to sell rooms and manage an operation that generates enough earnings for all stakeholders. Proper due diligence will need to make sure that the operator behind the brand is bankable and delivers on contract parameters that are inevitable to professional investors.

Andreas Ewald
Andreas Ewald

4. What are the strategies hotels are employing now to boost revenue and curb costs?

A driver for both revenue and costs is distribution. All hotels face the constant struggle to generate direct bookings while being findable and bookable via the dominating online channels that have also evolved into information and review platforms. Technological advancements in channel and revenue management create the chance to benefit from the strong development of room rate levels. Hotel chains apply a high degree of centralization to central offices and implement the infrastructure that allow for a quick expansion and broad allocation of fixed costs. Also, we see more and more hotel developments that attempt to open F&B offerings to the neighborhood, returning to the original ideas of boutique hotels as “the place to be,” in order to generate external revenue.

5. How has the role of new technology, home-sharing disruption and online travel agencies impacted your business?

Technology in general is the driving force in any industry these days, and is usually what enables disruption. Home-sharing, for example. Airbnb has this disrupting tendency and is certainly a development to be mindful of. It will be interesting to see how the improved targeting of business customers will have an impact. In fact, the individual and flexible character of home-sharing has led to the revival of serviced apartments that cater both to medium-term housing seekers as well as hotel guests looking for more flexibility. This leads to more operators and buyers that we support in this segment.

6. What has been keeping you busy in the past year and what will you be focusing on in the year to come?

The Engel & Völkers Hotel Consulting GmbH was founded in November 2016, so our first year was heavily coined with gaining market attention and mobilizing our extensive company network. In the year to come, we want to expand our presence in Europe and continue to develop innovative advisory approaches.

The International Hotel Investment Forum is March 5-7, 2018, at the InterContinental Berlin. Find out more at ihif.com