Recent Developments in the Hotel and Leisure Market
Alex Campbell is a regular panel speaker at the International Hotel Investment Forum in Berlin. Based on his discussions at the forum, Alex considers in this article recent developments in the hotel and leisure market.
Growth of the hotel and leisure market
The UK and international hotel and leisure market has gone from strength to strength in recent years. Colliers identified that in 2015, hotel occupancy levels were above 80 per cent. In London and at 75 per cent. On average in the regional UK market. PWC predicts continued market growth across the UK in 2016. However, in the ever changing industry, owners and operators need to continue innovating their hotels and services to stay relevant.
The rise of online travel companies
The main topic of discussion at recent conferences has been whether peer-to-peer lodging concepts such Airbnb, Homeaway and Wimdu will ultimately dominate the traveller accommodation market or whether consumers will mainly continue to opt for staying at branded chain hotels.
Branded hotel management agreements typically have a long tenure of 30 years or more to enable operators to build up the reputation of the hotel in question and maximise the base and incentive fees that they are likely to receive. Some market participants express the opinion that due to their length, the terms of such agreements quickly become out of date and bind owners to fee arrangements which may not always accurately reflect the market value of the relevant brand. Management agreements could be updated to include mutual termination rights without notice and annual fee reviews so that they were more like online travel company service contracts.
Hotel operators have generally resisted market pressures to change such key contract terms on the basis that they need certainty of tenure and fee revenue for the on-going investment in their brands. Paul Pisani from the Corinthia hotel group said at the IHIF 2015 panel "Innovative management contracts – breaking the mould!" that the group reinvested approximately 70 per cent. of fees collected to enhance their platform and training programme. Despite the growth in the peer-to-peer lodging market over the last decade, the key terms of market standard hotel management and franchise agreements have typically remained the same.
Branded hotel operators may have been sensible to weather the storm. CBRE reported in their recent 2016 Mood of IHIF Survey that respondents were of the view that the threat of peer-to-peer lodging concepts to branded hotels may have been overstated.
However, Accor Hotels' acquisition of home share company Onefinestay suggests that operators view the segment of industry as an increasingly valuable part of their portfolio. Due to the size and diversity of the international hotel market, I think that it is likely that there will continue to be a place for both types of accommodation experience.
The development of the boutique hotel market
Over the last five years, there has been a major shift in the hotel market in favour of boutique hotels and I expect that this trend will continue for the next several years to come.
Whilst some travellers like simple, cookie-cutter brand accommodation experiences, a rising number of travellers are opting to stay at lifestyle, design or unique concept hotels, which give them a greater sense of exploration and local interaction. Large and long-established branded hotel operators have noted this trend and a number have created new boutique brands or unique hotel fit-outs to rival smaller competitors.
At the IHIF 2016 panel "Brand X-Ray", Hilton launched the "Canopy" brand, Meraas launched the "Evado" brand and Steigenberger Hotels launched the "Jaz" brand. Each brand offered a unique cultural lifestyle experience. For example, the Jaz in City Amsterdam hotel which opened in September 2015 has art exhibitions and impromptu music pop-up performances by home-grown musicians. The Holiday Inn Manchester City Centre that was opened by the Dominvs Hotel Group in June 2016 has a unique design style which references the 1990s Manchester music scene.
More and more travellers are choosing hotels to stay at using customer review websites like tripadvisor. This is because customers trust reviews by other travellers more than they do official business communication as they assume that the reviews are independent. As a result, operators are proactively monitoring and responding to such review websites to make sure that the reputation of individual hotels, as well as their general brand, are positively maintained.
Rapid developments in technology
Technology now plays a very significant role in the hotel and leisure experience. For some time, operators have used preference data collected through their booking systems to personalise a hotel customer's stay. However, new innovations in the pipeline will help to enhance a customer's experience further.
Based on airline travel systems, Hilton are establishing a new direct room concept so that when travellers book on line, they can choose their specific room on their preferred floor, book meals and check in in advance so that when they arrive at the hotel, all they need to do is collect the key. Customers may ultimately be able to use a bar coded ticket that they can use to access their room. The concept should greatly speed up check in and check out processes.
Designers are integrating technology into hotel room facilities. Customers expect to have WiFi in their rooms which is as fast as what they have in their own home. At some newly opened hotels, such as the Hotel SB Diagonal Zero in Barcelona, customers have the ability to plug their computers directly into their room televisions and sound systems for their own personalised home entertainment comfort. I expect such technology systems to become the norm in the months to come.
Increased interest in service apartment hotels
The budget hotel sector has continued to perform well and hotel chains such as Premier Inn are fast becoming the accommodation of preference for regular business travellers. However, travellers who may need to stay for business at a location for more than one or two nights are becoming more inclined to stay at low key serviced apartment hotels where they can have bedroom, bathroom, kitchen and sitting room facilities and be at a home away from home. The Place and Roomzzz aparthotels in Manchester offer customers apartment accommodation a similar prices to mid-tier branded hotels. It is likely that serviced apartment facilities will grow to become a larger component of the overall hotel accommodation market in the years to come.
The next 12 months
The international hotel and leisure market has sadly been impacted upon by political unrest and terrorism over recent months. Major tourism destinations have been affected, including Thailand, The Maldives, Belgium and France. The Foreign Commonwealth Office currently advises against all but essential travel by air to or from Sharm el Sheikh, and travel to parts of Turkey and Tunisia. A survey by TravelZoo found 30 per cent. of British travellers rate the safety and security of a destination as the most important factor when deciding where to go on holiday and bookings to Greece, Spain and Portugal have significantly increased this year.
Fortunately, tourist destinations recover from terrorist attacks quicker than they would an environmental disaster according to travel analysts. The World Economic Forum says "The hotel industry is becoming more resilient to shocks from terrorism. In effect, the time that it takes for destinations to recover from these shocks has significantly decreased over the past 15 years." With the increase in international security measures and anti-terrorism initiatives, I hope that tourism to affected destinations will bounce back to previous highs over the next year.
The UK domestic hotel and leisure market will be impacted upon by the recent referendum decision to leave the EU. CBRE noted that as UK hotel liquidity had been driven in recent years by international inbound capital seeking security and stability, Brexit may at least in the short term lead to a decline in the overall appetite to acquire hotel stock as Britain loses its perception as a "safe haven". Proposed increased controls in immigration may adversely impact hotel staffing, which is very dependent on non-UK EU born citizens.
The positive news is that interest rate rises are likely to be deferred until there is greater clarity on the future of the UK economy and as CBRE points out, a weakening of the Pound against the Dollar and Euro will "make the UK highly competitive in terms of pricing for inbound travellers and therefore result in greater overseas demand for hotel accommodation". VisitBritain figures show a substantial increase in "staycations" in 2016 and I anticipate that this trend will continue over the next 12 months.