Emerging trends in the hospitality sector, part 1

The International Hospitality Investment Forum (IHIF) took place in May 2022, in Berlin. Director Andrew Carroll attended as one of the 2300+ in-person delegates and, in this paper, gives a summary of some of the key takeaways from the conference, including an overview of how the sector has responded to the Covid-19 pandemic and what trends are emerging across the sector. In part 2 Andrew will give his own prognosis for a design-led, mixed-use future.

The conference hosts expert guest speakers from the global hospitality sector and so is the ideal place to gauge how the sector has performed over the last year and what the future holds for the industry. The overriding sentiment was optimistic, albeit with a note of caution in the short to medium term. The response to the easing of restrictions has led to a surge in take-up, however, this may be a short-term ‘bounce’ rather than a long-term recovery, as we are yet to see the full impact of rising inflation, energy costs and the war in Ukraine on the global economy.

Leisure is leading the recovery from the global pandemic.

Although we are still dealing with Covid at different stages globally, the sector has shown a much stronger recovery than previously anticipated, with many markets seeing a return close to 2019 pre-Covid occupancy levels.

According to Robin Rossman of STR, the recovery can be summarised by a return to ‘Sea, Ski and Tea’ with the pent-up demand for beach and ski resort holidays clearly evident and the UK leading the way with the ‘staycation’. Many of the top 15 destinations in the ADR (Average Daily Rate) figures are UK holiday destinations, with Bournemouth topping the table at 168.

According to data collected by STR, Economy hotels are leading in the occupancy tables with figures approaching 90% with luxury hotels ‘bossing’ the ADR index.

The leisure and resort sector is seen as an attractive investment opportunity due to the strong demand – the highest demand in the last 10 years – for holidays and leisure travel. This is a direct response to the pandemic when our freedom to travel was taken away from us.

There are some obvious negative indicators also. The current lockdown in China due to Covid has had an immediate impact both internally and internationally. There is also a hesitancy as consumers fear losing their bookings due to a change in circumstance or because of Covid regulations in a destination. To address this, many are reverting to booking through travel agents to give them an added sense of security - and they are willing to pay for it.

There have been fewer cancellations with customers typically booking their stay much closer to the date to ensure any potential disruptions due to Covid are limited. This is good news for the hotels as they are much better placed to staff appropriately and limit any abortive costs.

The luxury market.

The luxury market has been quite resilient but has been affected by the travel restrictions globally, which has limited the accessibility to many resorts.

The fall in corporate events and weddings has also had a significant impact on this sector.

As we emerge from the pandemic, people have been keen to take up all-inclusive offers and take advantage of the flexible working that most of us now enjoy. A new model has emerged, where people merge a business trip with a family break, and this has buoyed the sector overall.

Operational costs, inflation, energy crisis and Brexit.

With inflation rising to a 30+yr high, private equity investors and funds are naturally cautious about how this will affect the hospitality sector in the short to medium term. Given the nature of pricing within the sector, obstacles such as increasing costs and inflation are managed fairly well, with a dynamic pricing structure that can be adapted and costs passed on to the consumer in real-time on a daily basis.

However, the additional operational costs are an issue across all sectors and there is a skills shortage as a result of losing staff from the industry during the pandemic. There is now a challenge to encourage those staff back into what is a very challenging industry. There is a need to recognise and incentivise staff from the management level down to help make the business perform.

The energy crisis is a further cause for concern and the ongoing situation in Ukraine means increased uncertainty that will in turn affect confidence, not just in the hospitality sector but across all development sectors.

In the UK, the impact of Brexit is clearly showing a significant impact on the hospitality sector, not least with a shortage of staff and the potential additional cost of attracting new staff and associated training costs.

The big unknown – the return of the business sector?

Whilst the leisure sector has shown excellent resilience across the whole of Europe and the luxury leisure sector has continued to grow across the Middle East, the big unknown is when, if at all, will the business sector recover to pre-pandemic levels. We are all more aware of our personal carbon footprint and the use of technology will continue to influence our approach to business travel in the future. However, there is still a huge value in personal relationships and the need to meet people face to face in order to conduct our business.

This is leading to the emergence of a new hybrid business/leisure model where we are extending our stays and bringing the family along to mix business with pleasure. All of this is good news for hotel operators and will start to influence our hotel designs to accommodate the evolving demands of the modern-day business traveller.

Where to invest your money.

Budget hotels continue to enjoy high levels of occupancy and have a much lower operational cost-per-room than the mid and upper-level leisure hotels. Budget brands will continue to refine their operational model using new technology and user-friendly platforms to continue to reduce reliance on staff, helping to manage the shortage of labour and costs associated with this.

Extended stay hotels and aparthotels are a popular choice for the business traveller and linking a business trip with a leisure visit is well-suited to this sector. As an investment opportunity, the aparthotel offers excellent flexibility for future adaptation to BtR or student accommodation, providing funds with a level of comfort in the long-term investment opportunities of the sector. This also helps to support the ESG criteria for investing in adaptable and sustainable developments that can evolve over time, whilst minimising the whole life cycle carbon footprint of the investment.

The leisure sector has emerged as the strongest investment opportunity for funds/investors, with consumers willing to pay a premium for a weekend break or longer holiday. The 'younger' generation is especially willing to pay for experiences, rather than material possessions. The popularity of the all-inclusive holiday reflects our desire for being taken care of away from home, after the recent period of restrictions.

Introducing the hotel to the neighbourhood – a mixed-use masterplanning approach.

There is growing recognition of the need for the non-room related activities within the hotel to interact with its surroundings much more successfully. This accords with our own masterplanning approach, where the ground floor of the hotel is very much part of the mixed-use offer of the surrounding city or neighbourhood. With some hotels’ revenue due to room sales at around 40%, the need to create additional revenue opportunities and invest in the wider amenities and facilities is clear. This can be in the form of signature restaurants, gym operators, coffee shops, leisure activities and more.

We need to incentivise staff to work hard to make the business a success, particularly in the non-hotel elements of the offer. The way an operator/brand manages this will be key to the success of the mixed-use ground floor.

Health and well-being - using technology.

The evolution of technology use within buildings must be embraced in order to realise the huge possibilities that it presents. The hospitality sector has led the way in this regard and other sectors, such as Build-to-Rent, have taken its lead to use technology to create a branded experience for residents that fosters a sense of belonging and brand loyalty. As technology advances, the brand experience will be much more interactive and bespoke – creating a point of difference for brands and operators.

There is the potential for the hospitality sector to provide more specialised services that close the gap between the hospitality and senior living sectors, with a focus on extended stays and health and wellbeing. It is important to note that the reference to ‘senior living’ may be significant for investors to see that they are diversifying their funds appropriately, however, in design terms, it should really just be seen as ‘living’. With this approach, it is then more about providing high-quality design solutions and services that appeal to a wide demographic.

Going one step further, the use of technology and careful design could create opportunities for hotels to provide enhanced services for guests that could bridge the gap between the hospitality and medical sector.

This is already starting to happen in some parts of the world, in Bangkok for example, this can be demonstrated by the Chapman Taylor designed Bumrungrad International Hospital, where luxury hospitality meets healthcare.

The rise of the aparthotel.

With the business traveller staying for longer and potentially adding a leisure break into the mix, the idea of creating more flexible spaces for people of all ages is an attractive one.

An extended stay can be anything from a few days to a full year. There is an under-representation of this offer in the marketplace and there is significant demand that is not being met. In the UK and Germany, the ‘aparthotel’ market is much more mature and established than say in Spain, Portugal and Italy.

The flexibility that these developments can provide is very significant, however, the current restrictions in Planning policy (use class and local regulations), can make this a complicated sector to develop through the design and approvals process. Typically, developers would opt for a hotel-use class that allows for rooms to be let on a single night basis as a default. There is a risk that developments won’t keep pace with demand due to policy systems being unable to change quickly enough.

Adding value through amenity spaces.

The lessons learned from the Build to Rent sector are that amenity can be a defining factor in creating a sense of community, brand identity and ultimately brand loyalty. However, flexibility and adaptability remain key considerations in the design of these spaces. They need to be multi-functional and support a number of different settings and uses throughout the day. Storage for equipment must also be considered to make the spaces easy to adapt from an operational point of view, being careful not to affect operational efficiency and staffing levels.

Some aparthotel operators, such as Yay, prefer to create centrally located developments in the heart of a neighbourhood with limited private amenity space. The residents are then encouraged to integrate with the local community and support local businesses on their doorstep. This is a model that can work in the most connected and central areas but is a challenge in more detached or remote sites. The focus here then is on the design of the apartments.

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To chat with Andy to discuss our hospitality expertise, contact him at acarroll@chapmantaylor.com

Coming soon: Part 2 of Emerging trends in the hospitality sector: a design-led, mixed-use future.

About the Author

Andrew Carroll

Director, UK

Since joining Chapman Taylor in 2002, Andy has been involved in the design and delivery of major projects across a range of sectors including mixed-use, office, residential, hospitality, retail and leisure.

Andy has considerable experience at all stages of design with a particular expertise in leading design teams through the detailed design and delivery stages of large, complex projects. He enjoys working collaboratively to lead and motivate the team with a creative and positive approach to his work. As a UK Board Director, Andy oversees design delivery services and helps to define and implement our core values across the UK.

Areas of expertise:

Mixed-use / Workplace / Residential / Hospitality / Retail / Leisure / Design Management / Design Delivery

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