The hospitality industry is in transition.
The pandemic, the ever-growing proliferation of hotel brands, the merging of international global hospitality companies, and the convergence of hotel hospitality with other operations including co-living, flexi-working, senior-living, serviced apartments, extended stay, wellness resorts and branded residences, means that the stand-alone hotel is likely to be a bygone relic by the year 2050. In this article we review some trends which are likely to shape the hospitality landscape of the future, and we also set out the overriding importance of the sector’s swift adoption of sustainability measures in its development.
Following the release from lockdown, guests/consumers/travellers knew that they were never going to take travel for granted again. They wanted to see the world, exercise travel as their human right and prioritise their spend of disposable income on experiences rather than consumer trinkets.
Some travellers (not knowing when a lock-down may hit again) ‘carpe diemed’ and treated themselves to a dose of luxury. The premium/luxury hospitality sector immediately showed its gratitude – a recent Morgan Stanley assessment shows that luxury and lifestyle hotels currently (summer 2023) deliver 20% of the hotels sector’s revenue, while only making up 4% of global inventory. Investors are quick to support luxury and lifestyle brands, as the segment appears to offer further potential for growth and greater returns, with hoteliers’ Revenue Management departments nudging up rates as travellers become willing to pay more to enjoy the same experiences. STR’s presentation at the International Hotel Investment Forum in Berlin in May 2023, indicated that travel would be the last thing that an overwhelming majority of consumers would cut from their personal budgets for the year.
Another trend has been an increasing desire for travellers to feel part of the community in which they stay. This may either be a natural effect from the AirBnb boom of the past decade, or it may be because hotel guests have grown to expect a more social aspect to their stays and not just the 4 walls, pool, spa and bar. After effectively being locked-up during the pandemic, their desire to be among other people has become most important. International hotel operators consequently increased their range of lifestyle brands which celebrate the features, landmarks and culture of the local community in which the hotel is located. Hyatt’s Unbound Collection; Tempo by Hilton; Moxy by Marriott; Thompson Hotels and the Curio Collection, are just a small number of the lifestyle brands which have seen a widespread roll-out throughout NW Europe to satisfy traveller’s requests for community.
Furthermore hotels are increasingly finding themselves at the centre of development schemes which also contain offices, health clubs, retail stores, food & beverage outlets, and a central recreational bar. Over time, the hotel is likely to become a hub for the local community as well as for travelling guests. It will locally promote its facilities for graduation parties, farmers’ markets, co-working offices, childcare services, EV charging points, weekend parking etc as well as taking bookings for hotel rooms.
Consequently, hotel investors will look to enhance the value of their assets by requiring their operators to increase their skillsets to ensure they can efficiently maximise the revenue returns from each square metre of the investor’s development, beyond the traditional hotel alone, so that any dip in hotel bookings can be offset by returns made in flexi-working spaces, branded residences, casinos, spas, bars, and other complimentary hospitality operations on site. So not only will the geography, look and feel of hospitality developments change, but their operators’ day-to-day operational responsibilities will need to be supercharged to facilitate the change. Investors have already kicked the ball, by starting to repurpose the hundreds of thousands of square metres of currently vacant city centre office space, to ‘hotelize’ it into their developments. The City of London Corporation wants to transform swathes of empty offices into London hotels as part of plans to turn the financial district into a “global leisure destination” that can draw holidaymakers and pleasure seekers alongside suited bankers.
Notwithstanding these trends, the United Nations estimates that nearly 40% of global carbon emissions come from commercial real estate. It is therefore of paramount importance that the sector promptly adopts sustainability measures in new developments to ensure that the net carbon zero target for the UK is achieved by 2050. Furthermore, in recognition that 80% of the buildings that will exist in 2050 already exist today, decarbonising existing properties is just as critical as creating low-carbon new builds.
Energy remains the largest contributor to hotels’ carbon footprint (as well as being one of the largest operating costs for hotels). Some major hotel groups have introduced scalable initiatives to target a 46% reduction in emissions from the energy used across their owned, managed, leased and franchised estate by 2030, and have established audit partnerships for hotel owners’ use. The industry recognizes that a comprehensive net zero strategy for hotels must address all areas, including the fabric of the building, technology and behavioural change. UK Hospitality launched a Sustainability Programme aimed at guiding the sector to net zero by 2040 by setting out 10 pledges in the four areas of waste, supply chain, skills and biodiversity. The Energy and Environment Alliance is another body specifically constituted to advise the industry on sustainability principles in many work streams including, hotel management agreements and franchise contracts, new sustainability regulations, green construction clauses for construction contract precedents, informing the industry on green finance, sustainability principles in hotels’ day-to-day procurement, and green hotel leases.
The ongoing audit of sustainability measures used and refined in the development of hospitality spaces should remain a priority to ensure that the real estate hospitality landscape thrives into 2050 in the multi-operational clusters as described above. The key opportunity for shrewd third-party operators is to now widen their palette of expertise across the various sectors of operational commercial real estate, to ensure that they take their place at the centre of these hospitality developments of the future; 2050 and beyond.
This article first featured in the Cambridge University Land Society magazine 2023.