Is Hospitality a Real Estate Industry?
For lending purposes, there are six commonly defined sectors of commercial real estate. These categories are office, retail, industrial, multifamily, hotel, and special purpose. Hotels are considered non-core real estate investments characterized either as value-added or opportunistic real estate from both the equity investor and lender perspectives.
This classification creates the wrong mindset among many hotel owners and hotel executives who operate their properties like real estate businesses.
True, any hotel operates within the physical confines of a real-estate asset, but so do retail stores, colleges, hospitals, manufacturing, etc. Do you consider Target, which owns most of its 87 stores, a real-estate company? Or Amazon, since the company leases or owns more than 160 million sq. ft. of warehouses? Or Tesla with its 8 gigafactory manufacturing plants? Of course not.
So, what kind of industry is hospitality? In my view, hospitality has become a technology-enabled service industry, not a real estate industry.
Today's hospitality is a 100% digital technology-enabled industry powered by online, mobile, cloud, IoT, AI, robotics and blockchain tools and applications. Digital technology is making its way into every aspect of the industry: hotel operations, guest services, communications, revenue management, distribution, CRM and marketing.
The digital transformation is changing hospitality in unprecedented pace and hoteliers are caught largely unprepared. Even worse, the pandemic accelerated digital transformation by 10 years (McKinsey & Company) and today’s travel consumers have become even more digitally-savvy than ever.
In contrast, many hoteliers would prioritize changing the carpet in the lobby over providing mobile check-in or installing IoT devices in guest rooms. This is in sharp contrast to the needs and wants of today’s travel consumer. Guests today are super technology savvy, they expect the same technology advancements when they go to a hotel as they have at home, and unfortunately they’re not getting it.
Unfortunately, our industry is vastly unprepared for this new digital reality. Most hotels are desperately lagging behind the technology - devices, amenities, mobile and cloud services - customers enjoy at their own homes. Long gone are the days when staying at a hotel meant experiencing better technology and amenities (flat-screen TV? HBO? High-Speed Internet?) compared to the guests' own homes. Quite often, today's travel consumer enjoys better technology and amenities at home: 6G Wi-Fi and "smart" homes, cloud applications for practically everything, voice assistants, streaming media, smart TVs, and IoT-enabled devices, etc.
In other words, as far as guest experience is concerned, the hotel from “home away from home” has turned into a “sub-par home away from home.”
From a technology perspective, the urgent challenge to hoteliers is to create a "digital technology environment" and provide hotel and room technology applications, services and amenities that are at least at the same or preferably better level than what guests already enjoy at home.
Today's hoteliers must move away from their real estate mentality and start understanding, knowing and using digital tech solutions in day-to-day operations, and be able to assess, evaluate, recommend and acquire technology solutions to improve guest satisfaction, operational efficiencies, productivity, customer service, revenue and yes, the bottom line.
So, is hospitality a real estate industry? Of course not! Hospitality is a technology-enabled service industry that operates out of real estate assets, same as any other service and retail industry.
