Accommodating change in the hotel sector

23rd June 2020

The theatrical impresario Richard D’Oyly Carte spent the profits of his Gilbert & Sullivan operas building a luxury hotel.  When the Savoy opened in 1889, it was the first hotel in London to include bathrooms in the majority of its 268 rooms.  To our modern sense of “upscale” and (especially now) heightened awareness of hygiene, it seems extraordinary that en-suite bathrooms were once a novelty. But hotels have always evolved in the wake of history’s endless, and often nasty, surprises.  Make no mistake, they will innovate and ultimately thrive again in response to COVID-19, just as they have when faced with all the public health challenges of the past. They have constantly reshuffled their décor, design, target customer base or ownership structuring, to accommodate (in more senses than one) customer and investor demand.

Now the hotel industry faces its greatest challenge since the Savoy first opened its doors.  Trade has stopped abruptly in the wake of this global pandemic and the requirements of social distancing and public fears around cleanliness and contagion seem to rule out a swift recovery.

Many operators have already responded by embracing technology, recognising the convenience of contactless check-in, unlocking the door with one’s own phone and hosting virtual (as opposed to actual) conferences.  These operators will benefit and grow now, alongside those who have minimised their food and beverage offering in favour of a capsule room with minimal hard surfaces.  

There are also many other ways to adapt.  ACCOR has recently announced a strategic partnership with AXA to provide medical support to guests across its global portfolio.  Many brands have launched new hygiene and health protocols as an integral part of their wellbeing offering to guests. 

Operators and investors will also need to trade off their brand and reimagine their assets to open up supplemental sources of revenue.  In 2017, Hilton launched a partnership with Amazon.com allowing customers to buy goods online using Hilton Honors reward points.  Hotels are already common in mixed use developments, and now surplus areas need to be recycled for other uses such as long-stay apartments, flexible co-working (at a safe distance) and perhaps even retirement and BTR living.

Some commentators have rushed to categorise hotels as simple alternative assets, capable of being shut down by an external event with rooms lying empty and event space moth-balled.  But this is not the full picture.  Hotels have been adapting to a changing world for well over 100 years and, as those who own and operate them have always known, in the words of WS Gilbert, “Things are seldom as they seem…”.

By Clare Whitaker
Real Estate Partner & Cambridge Office Location Head

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