The International Hotel Investment Forum (IHIF) 2023, saw over 2,500 delegates attend at the InterContinental in Berlin, including our own Yassar Jassani and David Cordery. The Forum covered a wide variety of topics relevant to the hospitality and leisure sector: from finding finance and utilising AI, to enhancing hotel asset value through ESG across the supply chain.
In this article, we review the key themes from the conference and the topics that were at the forefront of discussions amongst investors, developers, and occupiers.
Lending and finance
The cost of debt in the hospitality industry has reached its highest levels since the financial crisis and deals involving debt are significantly more costly than they would have been in previous years. Whilst this has led to an increase in all-equity buyers, it is important to note that there are still lenders available in the market who are willing to finance deals, albeit at a higher cost or lower LVT. Traditional hotel development lenders are nervous and even the alternative lending market, where there is still a strong desire to lend, will look to do so with developers with a good track record, financial stability, and a solid brand. Of course, this raises the question: how can newcomers to the market secure lending for their projects? Congruent with the theme of IHIF 2023, 'Fortune Favours the Bold', developers partnering with established brands to secure finance was a popular topic.
It is undeniable that the cost of debt adds significant complexity to securing finance for potential investors. In addition to this, seller expectations remain inflated due to robust consumer demand within the hospitality sector. This ultimately leads to a disparity between the price desired by sellers and what buyers can afford. This mismatch between expectations is a hurdle for the majority of deals in the present landscape.
ESG
ESG has emerged as a prominent theme across every industry and sector; the hospitality industry is no exception. IHIF 2023 established a dedicated ESG Hub; a space dedicated to exploring ESG issues and the broader implications for investors. The future of ESG in the hospitality industry appears promising with a greater emphasis on social responsibility (including diversity and inclusion), employee wellbeing, fair labour practices and community engagement.
In addition, travellers are increasingly more conscious of sustainability and will want to visit hotels which adapt to meet their evolving standards. This means more hotels will be offering eco-friendly amenities, promoting local culture and heritage and incorporating information on sustainable practices. ESG considerations will be integrated into the overall guest experience. However, due to market inflation and uncertainty, there remains a lack of clarity regarding the premium guests are willing to pay for sustainable accommodations.
There are notable success stories. Lamington Group has already opened the world's first net zero carbon hotel in Chiswick, West London under its room2 brand and, during the conference, Zeal Hotels made a significant impact by signing an exclusivity agreement with IHG Hotels & Resorts for their inaugural net zero carbon hotel, with the property targeting a BREEAM Excellent rating. This development holds immense significance for the hotel industry, particularly as the UK remains committed to reducing carbon emissions by 68% by 2030. Regulations and initiatives such as BREEAM and Green Key Certifications are further motivators of the increasing presence of ESG within hospitality.
Conversion of office space
Another noteworthy trend the conference highlighted is the conversion of commercial office spaces. Whilst people have since returned to work after the pandemic, the traditional Monday to Friday commute is no longer the norm for most service jobs. There has been an increase in distressed office sales, resulting in offices being converted into hotels or transformed to include health and wellbeing services, accommodation, and food & beverage facilities. This is to attract employees to come to work and attract external customers. At the beginning of the year for example, plans were unveiled to convert part of Melton Borough Council's offices into a 65-bed hotel with the hopes of making better use of an underused building, addressing the lack of hotels within the town and boosting the night-time economy. The conversion of office spaces reflects the changing demands of the relevant industries and presents an opportunity to repurpose underused spaces.
The lingering effects of Covid-19 and the future of the hospitality industry
Supporting the trends identified by IHIF 2023, Deloitte's 2023 Hospitality Industry Outlook indicates that even though there has now been some recovery from the Pandemic and the impact of the Pandemic is expected to recede by Q3 2023, issues in relation to surging inflation are rising. 83% of hospitality leaders found that the key threats to the industry this year will be rising costs and shortage of skilled labour. In the long term, sustainability was identified as a growing risk. Whilst there are many challenges to the industry, including the cost of debt and labour shortages, it is important to note that the industry is resilient and finding opportunities in challenging times, for example through conversion of office spaces. Nearly three-quarters of hospitality leaders in the UK feel optimistic about the long-term future.
In conclusion, IHIF 2023 shed light on the challenges of high debt costs and buyer-seller mismatch within the hospitality sector. However, the rise of ESG brings opportunities for sustainable guest experiences, while repurposing office spaces taps into changing demands. Despite obstacles, the industry remains resilient, with a positive outlook for the future. The conference affirmed that fortune favours those who embrace change and adapt to the evolving landscape of hospitality.
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