For the next few years, properties that deliver a differentiated experience will benefit because there is more demand than supply, hotel investors say.
All types of hotels have enjoyed stellar performance in the post-pandemic surge, but it’s properties offering something distinctive in a particular market that have the most promising financial returns. Investors see the most potential gain in hotels that address growing guest tastes for distinctive, experiential offerings.
That was the word from a few leaders in hotel investment and management at Skift’s Future of Lodging event on Wednesday in London.
Investors said they had barely done any deals in the past year, in response to a question from Pranavi Agarwal, the moderator and senior research analyst at Skift Research. But they added that change is in the air.
“The only way to go from here is up,” said Joe Pettigrew, chief commercial officer at Starwood Hotel Asset Management. “The tap is about to turn on.”
Well, there has unquestionably been a solid post-pandemic rebound.
“In many markets where we have hotels, we’ve not only exceeded the 2019 levels [of financial performance] in nominal terms, but also in real terms,” Pettigrew said.
No wonder a construction boom is in the works, with some of the big hotel branded groups, such as Hyatt and Hilton, quoting record development pipelines in many markets.
Demand Outpacing Supply Long-Term
A mismatch in supply-and-demand will become another lure for investors in new construction, conversions, and rebrandings.
Demand for overnight hotel stays has grown at about 4 percent year on average fairly steadily for a long stretch of time, Clarke said. This long-term growth is driven by fairly reliable and consistent factors, such as a rising middle class in emerging markets.
Yet for a stretch after the great financial crisis and then again during the pandemic hotel pipelines have been below a 4 percent-a-year-growth average.
“There’s not going to be enough supply of hotels to fulfill that demand in many markets,” Clarke forecasted.
Shifting Consumer Tastes
Echoing observations made earlier at Skift’s event, the panelists said smart hotel investors are chasing differentiated products that will appeal to shifting consumer preferences.
“Even before Covid, there were lots of studies that showed, especially among Gen Z and millennials, that travelers prefer to spend more money into experiences and then things,” Pettigrew said. “They’re going to prefer an experience that is totally different from what they can get from a generic hotel.”
“We strongly believe that there is a complete change in people’s perception about what the ideal hotel experience is like,” Pettigrew said. “They want something that’s more experiential, different and unique. And that is the area that we’re going to be focusing on.”
Highgate’s Acquisition of Viceroy
Exhibit A of the type of portfolio that’s en vogue with investors is Highgate’s acquisition of Viceroy, which closes on Thursday.
“What we loved about Viceroy is that it’s an incredible customer facing brand with a great position in the lifestyle space, and it’s got, of course, some iconic assets,” said Ankur Randev, principal and chief commercial officer at Highgate.
Randev said Highgate will be able to help boost guest volumes by promoting Viceroy properties to the guests who stay at its 550 hotels and that it can bring scale effiicences to some of its back-end processes for things like renovation without tampering with Viceroy’s skill at branding.
Next-generation travelers like something memorable. Yotel, a brand that Starwood has a stake in, mimics aspects of Japanese capsule hotels, with fold-out baths and tightly compacted spaces.
“If you go into the lobby at 3:00 in the afternoon on a Tuesday, it’s full of people working in our lobbies and staying for five, six, seven nights, which we didn’t envision because those rooms are very small,” Pettigrew said.
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Photo credit: Ankur Randev, principal and chief commercial officer of Highgate, talks on a panel at Skift's Future of Lodging Conference on March 29, 2023. Photo by: Russell Harper. Source: Skift.