Hotel Topics Hotels in the New E-conomy - Hotel Real Estate 2010

By Rosemary Feenan.

Virtuality - Disintermediation - Connectivity - Scalability. Big shiny words for the sparkling New World of the E-conomy. The headlines tell us that the E-conomy heralds the deepest lifestyle changes we have seen since the industrial revolution. That it will challenge the core of conventional business thinking. And that it could threaten the very foundations of our property industry. Rosemary Feenan examines the phenomenon of E-Commerce and its impact finally on the property and then the hotel world.

The E-Commerce concept in relation to property considers the merger of place and space, the melting of geographic boundaries and the fading of the location premium as distance evaporates in a connected world. It is a phenomenon which revolves around e-business virtualising the very essence of conventional trade and unleashing it from the expense and constraints of real property.

E-Commerce has the potential to shake the very foundations of the property market and bring about a paradigm shift in the property world. Property professionals have the opportunity to take advantage of the virtual age to 'reinvent property', a core feeder of the corporate hotel business. Using connectivity and the internet to transform the role of real estate, they can re-launch it as a 21st century, fully wired, active asset.

In order to achieve E-readiness in the property world, there are five clear actions which need to be taken. These are actions in the fields of innovation, flexibility and service, connectivity, brand and location and all have implications for the hotel business.

Innovation - not a word that has historically tripped off the tongue in relation to real estate. Although there are some that have pursued this and ideas such as 'business villages', 'touchdown centres', 'loft offices', 'leisure quarters', 'retail showcases' and 'terabytes' come to mind, the latter being the latest innovation in the restaurant world, and will be the replacement of Cybercafes. Over and above standard internet connections, they will have broadband connections for data and video. The range and style of new property formats in the new E-conomy is limitless. We need to move away from the thinking of traditional bricks and mortar assets which were built for the needs of the 20th Century industrial economy where value was created almost by the mere existence of buildings.

Contractual flexibility is another issue to be considered in the quest for e-readiness. Companies like Regus, HQ and MWB in the UK are conducting the first generation of newage contracts. They are not selling buildings or even fixed space. What they are selling is service, flexibility, reliability, speed and access. Their products and services can be bought anywhere there is a computer. Therefore, the future will likely see a market where building will have to actively compete for occupancy, not against other buildings similar to themselves, but against airport lounges, train stations, cybercafes and hotels.

This leads us to the question of connectivity and whether our buildings are technology rich? There is the potential for the property market to adopt the new mantra of "Bandwidth location bandwidth". In real estate's transformation from an asset to a service, fully wired buildings are going to become the norm. Such buildings will attract premium rents, or in the case of hotels, room rates, in return for premium technology. Demand for technology rich buildings will undoubtedly grow and the requirements for fully wired premises is overwhelming and immediate.

Brands of space will increasingly become an international service business in real estate. Just as Coca Cola is to soft drinks or DHL is to logistics, brands will evolve as major differentiator across the business space offer.

Alongside virtual business, real world location will maintain an importance. Take Distribution Property. It is the most electronically advanced sector and already undergoing a geographical metamorphosis as a result of E-Commerce and Internet shopping, which has changed its locational drivers. 21st Century distribution is about supply chain management, not demand chain fulfilment. To use the cost and efficiency advantages technology now allows, it is having to polarise its operations to vast, centralised, high tech facilities at one extreme, to small, neighbourhood base, people intensive fulfilment centres at the other.

New networked organisations will be considerably less sensitive to location than the previous hierarchical breed, and connectivity is encouraging wider distribution of commercial activities within and between cities.

Now that we have all the attributes of a virtual building for the future, what will this mean for the investment market? By 2010 it is highly likely that our virtual property landscape will include electronic trading, full data transparency and disclosure. Online auctions will be the norm and property's new role in the E-conomy, as a business portal for 21st century trade, will lead to evermore creative and effective unbundling, re-marketing and pricing of complex risks. This may even eventually result in the abolition of the distinction between property and other forms of equity investment.

So we are gearing up for a future where E-ready portfolios are owned and managed by larger and fewer entities, and where flexibility, connectivity, service and brand are the mainstays of success.

We are expecting a future with innovative new property types, a proliferation of partnerships and associations, new metrics and business models, and a new set of market players. The E-business environment even in property, will be one of co-opetition, co-operation and customer focus. A future where real property will become the effective portal for virtual business.

So what does this mean for the hotel industry specifically within the wider real estate context?

The most taxing question the hotel industry currently faces, is to what extent will technology realign the traditional geographies of work and leisure, and therefore of the hotel locations that support them? It is clear that individual and commercial behaviour is responding to the spatial liberation that technology brings.

On an individual level connectivity and the internet have blurred our activities as workers, as travellers, as consumers and as tourists. We now exist in the same space, and at the same time as worker and tourist, as consumer and traveller, as citizen and leisure seeker. And the consequence is that it vastly complicates our demands from any real estate location.

There are two opposing schools of thought as to the consequences of the digital revolution on the future locations of work and ultimately therefore, the longer-term location of hospitality services. The first is that the freedoms of ultimate connectivity will release work from place and will jettison it into the ether, thereby irrevocably changing the economic geography of the commercial world. This will result in the "Martini Economy", a universal anytime, anyplace, anywhen approach to work. These new technosavvy employees don't work in places, they work with four dimensional spaces such as portals, vortals, and extranets.They are mobile, empowered, and are the engines of the 7/24/365 society.

The vision fits neatly with the case for technology driven home working and the deconstruction of the corporate portfolio into core and peripheral locations, similar to what is already happening in Distribution Property. This new urbanism movement sees a dispersion of economic activity into disaggregated but connected satellite communities with umbilical ties to central meet, greet and eat areas which were the CBD's of old.

The consequence for hotels - well if the centre of gravity of work shifts, surely it would demand smaller dispersed hotels as anchor points of these decentralised business exchanges. There are already examples of just such connected communities, the famous Beach Village in California, the Cyberport development in Hong Kong and perhaps on a small scale, the Docklands in London. The counter argument centres on the invisible technology movement. Those who believe that the so called disruptive technology of the Internet, will, like its transformational predecessors, the phone and the fax, become the norm by the middle of the decade. Technology will simply become absorbed. Its major effect will be in productivity improvements and increased business efficiencies, which will boost wealth.

The economy will shift into 5th gear creating a massive centralisation of businesses which, with a new agility, will form, grow, merge or disperse with alarming speed, but based on human, not just technological interaction. In this scenario the city centre hotel with high tech business facilities has a very healthy future.

What of new locations on the strategy map? Surely the young, energetic, cybersavvy working population of the 21st century will crave new untouched destinations but of course combined with the excitement of technology and the security of traditional values.

Serving these paradoxes has already become a mainstay in existing "far away" locations, but socio-cultural studies suggest that will there be the desire for even further extension of geographical boundaries in search of the transformative travelling or holiday experience. The phenomenal growth in extreme sports and wilderness experiences is certainly testimony to this.

However wacky locational ideas get, it seems inevitable that many of today's destinations are likely to seem too ordinary to tomorrow's increasingly sophisticated leisure travellers who will want hotel brands to support them as they become more demanding, more adventurous, and more desperate to prove individualism.

Amongst many uncertainties, we believe there are three certainties in the hotel industry. One is that central city locations will increase in popularity. Secondly, new strategic locations will emerge as a result of new economy activity. Finally, visiting remote locations will become the new icon for the wealthy, informed, technologically advanced traveller.

And just as the physicist Stephen Hawking said that the greatest discovery of 20th Century science was that of the relationships between particles. Then the greatest discovery for 21st Century hotels will be how to foster sustainable relationships with clients to whom both the real and virtual universes offers endless possibilities.

Rosemary Feenan, Director of European Research Jones Lang LaSalle
Rosemary's current responsibilities include managment of the programming, implementation and output of the core research activities of the English firm. These cover the analysis of trends, issues and likely futures in all real estate sectors. Over the past 15 years she has focused on Property Research, tracking the performance and development of business space, industrial and retail markets, both in terms of their property characteristics, their business drivers and the economies and technologies to which they are linked. Recent work has focused on the future of electronic commerce and "synthetic" data markets.