Consumer demand for sustainable travel experiences is driving a shift in the hospitality industry, write Taby Halliwell and Phoenix Chow
Travel remains a significant contributor to carbon emissions, estimated at 8%-11% of global greenhouse gas emissions according to the World Travel & Tourism Council.
Business travel accounts for a high proportion of this, increasing the pressure on businesses to reduce supply chain emissions. Simultaneously, leisure travellers are becoming more conscious of their environmental impact, actively seeking out sustainable accommodation options.
In the 2023 Booking.com Sustainable Travel Report, 74% of respondents said they believe people need to act now and make more sustainable choices to save the planet, up from 66% in 2022.
Additionally, 65% of people said they would feel better about staying in a particular accommodation if they knew it had a sustainable travel certification. This shift is reshaping investment decisions, especially in institutional settings, where measurement, monitoring and improvement are becoming standard practices.
Alongside this, the UK’s net zero goals mean that emerging guidance and legislation is placing greater emphasis on energy efficiency and sustainability. Investors need to ensure that their assets are futureproofed and risks are minimised in this rapidly evolving landscape.
One crucial piece of work that we’re seeing more investors and developers carrying out ahead of engaging in transactions is a Sustainable Asset Review (SAR).
This offers valuable insights into a property’s environmental credentials, including the health, wellbeing and social benefits, as well as energy compliance and operational performance, providing potential investors with a comprehensive understanding of its sustainability profile.
SAR takes into account both present day performance, certification and accreditations and importantly identifies potential future risks to transition to net zero emissions and opportunities for improvement to align with future decarbonisation targets.
Hotel assets face extra challenges on their sustainability journey due to guest usage of energy intensive amenities like hot water and air conditioning alongside essential management services like laundry. The age and type of hotel also brings different energy use exposures for example full service hotels with wet leisure facilities.
Potential risks to achieving a viable net zero future include a dependency on gas for hot water provision, even in buildings that employ efficient heat pumps for heating and cooling.
Hotels often occupy heritage buildings which present challenges to fabric improvement, or city centre locations, where rooftop plant competes with prime amenity spaces.
Furthermore, where EPC assessments are conducted under the previous building standards, this can also lead to a downgrade in rating upon reassessment due to new regulations penalising fossil fuel usage.
From an investor perspective, by highlighting these risks and providing tailored solutions and guidance for implementation, in this example to factor the replacement of the CHP with an all-electric solution into the planned plant maintenance schedule before the next EPC, the review promotes proactive risk mitigation and supports both capital expenditure and ROI forecasts for net zero transition requirements to a full decarbonisation pathway.
Another key aspect of SAR is a Carbon Risk Real Estate Monitor assessment which provides a summary of the building’s carbon performance and assesses its alignment with the 1.5°C Paris proof target and predicts its stranding date.
Stranding risk can impact assets’ value, rent potential and expected return on investment. Identifying stranding dates and potential interventions to mitigate risk equips investors with critical information, enabling them to make well-informed decisions regarding their investments.
The speed and cost effectiveness of these reviews to support due diligence process could also provide greater opportunity to access green finance mechanisms such as ESG-linked loans and green bonds.
Sustainable practices in energy management are linked with operational cost efficiencies therefore the role of brands and operators are equally as important. Since consumers are the largest drivers of energy consumption, greater measurement, data management and communication with operators is increasingly important to improve energy efficiency.
Renewable energy technologies can also provide utility cost savings in turn potentially boosting profit margins and value. A shared ethos and open dialogue between investor and operator is therefore crucial to longer term future proofing of assets with other tools such as green lease clauses to support this collaborative approach.
The speed of transition to net zero and ability to implement sustainable solutions is also influenced by the nature of hotel ownership and operations, for example leased hotels will require the examination of tenants given long FRI leases compared to owner operated hotels which benefit from full flexibility. This further highlights the need of greater communication between all stakeholders that contribute to the transition towards net zero.
SAR can serve as a valuable tool for reliably informing potential buyers or asset owners advancing their sustainability journey.
