Anyone who invests in hotel real estate does not necessarily have to be courageous, but knowledgeable. The sector demands more from investors than, for example, an investment in residential property. They must have detailed operational knowledge, asset manage the property actively and stay on top of technological change that might impact the industry in general and the asset in particular. As such, active asset managers can directly influence the performance to a greater degree than with residential real estate by making the right decisions about concept, experiences in the hotel that are defined through design, equipment and most importantly the operator delivering this experience.
A successful long-term concept requires that the equipment, personnel and floor plan of the hotel are adapted to the target group, price range and marketing concept. In addition, the concept must evolve with the dynamic market and future requirements. Digitisation is both a challenge and a help. Even investors who invest in flexible concepts must stay focused on the guest and all decision have to be centered around basic values such as service quality, communication and precision.
How investors benefit from their partners' experience
This applies regardless of at what point of the asset cycle the investor enters a hotel project. In order to succeed, he must combine the expertise of various specialists. For example, oftentimes a developer knows little about day-to-day hotel operations, while the operator is not experienced in negotiating with construction companies. Asset and investment managers therefore need to cooperate with specialists from various disciplines or build up their expertise in-house.
Through this cooperation, investors not only save costs and enhance the potential to maximize income, but first and foremost increase the quality of the hotel’s offerings by exploiting such synergies. This knowledge transfer also includes the know-how of the operator, who can assess the costs and viability of a concept. As a result, planning security for the investor is optimised, while the operator risk is reduced.
Another success factor is authenticity. Whether in luxury or mid-range hotels, guests across all segments long for authenticity, which young up-and-coming brands have made their virtue.
Besides a focus on experience and design, technology has come to the forefront to influence every aspect of the industry. The good news is that the necessary technology already exists. The bad news is that the potential is not being tapped into by a great part of the protagonists within our industry.
One example of this is guest acquisition. The days when you went to a travel agency to book a hotel, train or flight are almost completely over. The majority of travelers book via Internet portals such as Online Travel Agencies (OTA). The hotel industry thus has given up control of the hotel inventory rooms and generates high costs due to the fees paid to these OTAs. It must be stated that these OTAs have however also helped the industry optimize occupancies and maximize global visibility that in particular independent but also chain affiliated hotels would otherwise not have had. Technology and various platforms, however, allow the hotels to establish a direct relationship with the traveler to the extent where, over time, the guest, through his presence on the internet and social media, can take on the role of a booking platform, similar to trends in the retail industry.
Digitisation is opportunity instead of risk
Hotel businesses that use their own distribution channels are generally more profitable as the fees of an external service provider may be as high as 25 percent of the booking costs. Before buying a hotel property, investors should therefore always check exactly how the respective occupancy rate and the average rate of the hotel is achieved. An asset with an occupancy rate of 80 percent and an average room rate of $ 150 that generates its bookings predominantly from OTAs may have a considerably different bottom line performance then a hotel with the same revenue stream that however sources its guest through direct channels.
Distribution is not the only field in which technology can significantly enhance a guest's stay. For example, a few pieces of information that have been digitally queried beforehand can be used to provide more personal support. This begins with the check-in; if the guest is greeted with his name, his first impression is already positive. The room continues to be used, for example if the air conditioning is preset according to individual wishes or if the entertainment system is in the respective language. With digital contact options, the guest's care begins before check-in and ends long after departure.
Many hotels have a lot of catching up to do here, but this is also an opportunity. From an investor's point of view, it is essential to exploit the potential of the hospitality sector. Due to the change of demographics in the largest global economies, global travel will grow further. The opportunities are tremendous. However, we must be ware of a paradigm shift that is also true for travel and tourism: For 100 years, the industry has influenced guest behavior. Now, shifting guest behavior is influencing the industry in an exponential manner and we need to stay ahead of the curve to remain relevant over the lifetime of the hotel asset.
Theodor Kubak / Managing Partner, Arbireo Hospitality Invest, part of Frankfurt-based Arbireo Capital AG
Christoph Flügel / Member of the Executive Board at Arbireo Capital AG
