European and Asian Investors Demand Greener Hotels

Institutional investors in Asia and Europe are demanding that new hotels meet higher environmental standards as they look ahead for long-term, profitable investments.

“Institutional money is demanding this,” JLL Hotels & Hospitality Global CEO Gilda Perez-Alvarado said at the Skift Future of Lodging Forum on Wednesday. She has seen investors pass up or dispose of properties they view of as “brown” — or not green enough — in favor of more environmentally-friendly hotels or ones they view as easily upgradable.

The shift towards more environmentally-friendly hotels has several drivers. One reason is changing consumer habits where Generation Z and millennial travelers favor properties that can accurately claim higher sustainability standards than others. Other reasons are more financial in nature, including the geopolitical and energy crisis in Europe that makes energy-saving properties more profitable, and the pressures on Asian properties from the continuing near-full closure of China.

“What the Generation Z wants, what the millennial wants, they’re looking at this,” said Perez-Alvarado. “There’s no hiding,” she added noting that investors are increasingly demanding higher environmental standards for U.S. properties as well.

Many things go into lowering the carbon footprint of a hotel. Efforts can start with reducing single-use plastics and cleaning guest rooms less often, but investors are demanding that changes go further. That means making the actual buildings more energy efficient, for example tapping renewable energy sources or recycling waste water.

Environmental stewardship has become a major force in the travel industry. Airlines on both sides of the Atlantic have unveiled net-zero carbon targets and, in addition to their individual actions, are mounting pressure on governments to subsidize the development of sustainable aviation fuels to speed their decarbonization efforts. Rental car companies, like Hertz, are signing deals with auto manufacturers for hundreds-of-thousands of electric vehicles. And while some of these initiatives are essentially greenwashing, others — like the development and shift to sustainable fuels — will help reduce carbon emissions in the travel sector.

Beyond environmental moves, the hotel sector is booming. Highgate CEO Arash Azarbarzin said at the forum that revenues are coming in at a record pace and that the “trend is super positive.” This comes even with corporate demand still at only 40-50 percent of pre-pandemic, and international arrivals at U.S. properties still down significantly, he added. Highgate has seen an increase in what the industry describes as “bleisure” trips, or trips that combine both work and leisure elements.

“We think this summer is going to be the best summer we ever had,” said Azarbarzin, who added that there is no “recession coming for the travel business.”