In June 2020, soon after the COVID pandemic struck, HVS – together with our friends at Bird & Bird (lawyers), AlixPartners (restructuring specialists) and EP Business in Hospitality (publishers) – embarked on the first of what was to be a series of webinars. Little did we know at the time how much our respective clients and friends would come to appreciate the opportunity to hear from knowledgeable guest speakers with talented panellists adding their experience to each topic discussed.

So, four years on, our 20th webinar together returned to our original theme of Unlocking the Potential of the Hotel Sector when we again looked forward to what we expect the future to bring. We held this as a hybrid event – with some 40 guests drawn from some of those who had spoken at our previous webinars attending in person, joining our online audience of several hundred people. Please click on the link below to watch a video recording of the event.

Guest speaker Kate Nicholls OBE, the celebrated CEO of UK Hospitality, shared her views of where the country’s hospitality sector is heading. She noted that the process of ‘unlocking’ is continuing, with hoteliers around the country remarking that it has never been more difficult to turn top-line revenues into profits, with rising costs of debt, energy, payroll and supply-chain pressures being of particular concern, in spite of significant increases in revenues.

She remarked on the forthcoming general elections both in the UK and elsewhere around the world having a potential impact on the UK sector, and pointed to three reasons to be cheerful: (1) global travel is rebounding strongly (mentioning the Euro football championships, Paris Olympics and Taylor Swift as particular demand generators); (2) consumer confidence is rising, with eating out and holidays being particular priorities; and (3) inflation is falling and there is a feeling that the economy has turned a corner. She continues to press the UK government (and its opposition) for support for the sector in terms of easing planning restrictions, reducing the tax burden, especially recognising the impact of business rates and VAT, and encouraging more to boost employment, with jobs vacancies currently still running at 8% resulting in some operators having to reduce opening hours or having to limit availability of their facilities.

Five distinguished sector personalities then briefly shared their views.

  • Tom Emanuel of STR commented on demand growth from most countries of the world with the current exception of China and the USA. Europe continues to grow, with the UK and Ireland having recovered to pre-2019 levels. London luxury hotels’ room rates are now showing signs of softening having grown significantly in recent years. The economy sector is also growing well. STR is forecasting 3.5% RevPAR growth for the next year in the UK.
  • Ian Livingstone of London & Regional Properties confirmed his company’s luxury and budget hotels are doing very well with business more or less back to 2019 levels. Midscale hotels’ growth is slower, but business groups are now picking up. He sees the proliferation of brands by the major groups as resulting in greater difficulties in differentiation, and mentioned the area of protection (AOP) limitations within many contracts as being likely to cause increasing difficulties in the future. Sustainability is now becoming more of an issue – expensive to implement and hard to avoid. The sector also needs to do more to excite young people to the career opportunities.

  • Coley Brenan of KSL Capital Partners also emphasised the need for greater resources to be applied to recruitment, training and retention of staff. Investors and owners need to drill down into the detail of what the data and trends show – understanding their customers’ requirements, focusing on creating top-line performance and then managing the flow-through to the bottom line.
  • Jan Hazelton of Kerzner International confirmed the luxury space is a great place to be for consumers and investors. Many luxury products are opening up around the world and the quality of service and providing unique experiences are critical success factors. Development is currently more difficult, takes a long time to achieve and, in her company’s case, can require them to use their balance sheet to enable projects to come to fruition.
  • David Kellett of Invesco Real Estate commented on how hotels for some institutional investors are like Marmite – loved or hated! Consumer trends are currently looking positive and their requirements should be focused on. He has concerns about inflation and tackling this, especially when addressing the cost of implementing sustainability requirements, and for the sector to provide rewarding jobs to staff. He encouraged hotel groups to focus more on reinvigorating their core brands, finding value within their ‘unloved’ spaces and repurposing redundant buildings as hotels.

Finally, a lively panel discussion addressed some key questions, moderated by James Fowler of Bird & Bird. This time, we thought we would turn the tables on ourselves and have the hosts comprise our panel…

  • Graeme Smith, managing director of AlixPartners, stressed the need to tackle issues relating to labour, both in terms of overall costs and making the sector more attractive to young people, including those who may be located overseas, and providing meaningful, worthwhile careers. He also referenced the increasing importance of the holiday sector to institutional investors, but warned of the backlash of some areas to reducing their dependence on tourism. He is confident of hotels being a resilient asset class in its own right, becoming core assets to attract a greater share of the available capital, especially from new investors.

  • Karen Friebe, head of hotels, hospitality and leisure at Bird & Bird, noted the importance of sustainability, but that there is still a lot of talk and not enough action – for example, how should hotel management contracts be enhanced to ensure this is properly taken care of. She felt there is untapped potential from China and sees this as an opportunity, as well as converting unused office space to hotels. Whether new investors can be attracted to take leases or engage in management contracts remains to be seen. She reminded us of the need to maintain quality in the standards of delivery of hospitality. She also challenged the sector to make management agreements shorter and noted there have been a number of conversions from leases to management agreements in recent years, and from management agreements to franchises.
  • Russell Kett, chairman of HVS, remarked on how well the sector had benefitted from domestic tourism in recent years and that, now that international travel has picked up again, the UK hotel sector should do more to retain domestic travellers for short breaks and so forth. He also reminded hotel operators of the need not only to generate business and top-line revenue for their hotels but also to deliver a profit to their owners and investors, perhaps by repurposing under-utilised areas of hotels, having monitored their earnings per square metre, and even adapting the use of AI to help run businesses more effectively. He remains hopeful of interest rates coming down by Q3 of this year and for more deals to be in the pipeline by Q4.