The hotel business was laid bare last month as owners, operators and advisors described the pain but also offered some silver linings during a UK hotel trade conference in Manchester.
Hubert Viriot, CEO of global hotel group Yotel, was somewhat on the spot at the Annual Hotel Conference (AHC) in Manchester, UK, last month.
As one of the first speakers at the hybrid physical and virtual event, he was asked to sum up the position of the hotel industry in the region. Though he could not speak for every brand in the world, he said ‘everyone including Yotel has suffered greatly and is still suffering greatly’.
When the UK lockdown lifted in July, provincial leisure hotels had a ‘decent’ summer season benefitting from domestic tourism and the ‘rediscovery of their own country’. During the first few weeks of September, Yotel became more hopeful as it saw ‘positive trends’, but occupancy levels have remained in the low 20% range in the UK when everything stopped again.
Said Viriot: ‘It was a short-lived, hope-filled moment in September. As a second wave started and throughout Europe people were preparing for that, it naturally stopped most travellers from considering coming to London as more and more counties were added to the quarantine list, and also the government told people to work from home again.’
He added: ‘The UK pretty much locked down from the rest of the world. The main event we need is testing. In some of our foreign properties we have seen this trend in testing.
For example, we have a hotel in Istanbul where testing is compulsory upon arrival at Istanbul airport. The hotel has nearly recovered occupancy from pre-Covid-19 levels. There are similar measures in Dubai, though we have not opened there yet.’
‘Some hotels have suffered more than others, especially those relying more on international tourists and business travellers. The worst hit hotels in the market I suppose are the London hotels.’
Yotel has only two of five hotels open in the UK. One has reopened in Edinburgh, Scotland, which has benefitted from strong domestic tourism travel. Another is a new hotel that opened in London on 1 August, which has not benefitted much because of so few tourists.
Deirdre Wells, CEO of Visit Kent, said UK coastal and rural destinations in her region were among those that had done quite well. Kent hotel occupancy levels were around 50% and managed to reach two-thirds since August, but the market has remained challenging. ‘Some of that is because we have had to open in a more restricted way. There is still nervousness in the country.’
Bedrooms into workstations
Wells added: ‘There has been a shift from business travel. Those hotels that normally rely on midweek business travel are switching in quite an innovative way. Some are turning bedrooms into workstations and a lot have provided accommodation for key workers.’
She said room rates had actually improved in some favoured locations. ‘We have had some “revenge spend” – all of that pent-up demand with people desperate to spend their money on something. ‘At the moment, we tend to get very short-term bookings.’
Desmond Taljaard, head of hotels at London & Regional Properties, a private property company, said the firm currently had a ‘split personality’ approach to its hospitality business. On the one hand it is making sure its assets are ‘safe and viable’. On the other hand, it is bidding on many individual hotels and mini portfolios that display the right long-term potential that can be folded into the estate.
Asked if hotel investing was too risky, he retorted: ‘That’s too general. Too risky? As opposed to retail, as opposed to oil drilling? What I would say is it is a very difficult sector to take exposure to operational risk without full infrastructure such as research and oversight of asset management.’
London & Regional Properties has got some select service hotels in its luxury iconic destination portfolio in the UK that are performing extraordinarily well. However, Taljaard added: ‘London is having a super tough time, as is Barcelona, as is any destination driven by internal business traffic. But we are big fans of the UK and the Mediterranean.’
Munira Nathoo, director of family-owned Beverley Group Holdings, which has owned hotels for 30 years, talked up the long-term prospects of London.
‘There are short-term questions. Will the government extend the business rates holiday for the hotel sector? The end will come for the capital repayment holiday on our senior debt, so the next three to six months do present uncertainty. But when you look at the fundamentals of the UK hotel market there is pent-up demand and European travel will return. It is not homogenous but for well-located hotels in the budget sector we feel very optimistic.’
Driving occupancy
Stuart Symes, VP franchise operations UK & Ireland at hotel giant Accor, said one of the first things the brand did in response to the pandemic was create ‘All Safe in Accor’. Many of the hotel brands have created health safety protocols.
Secondly, the group started to think much more ‘locally’, plus it has given people the opportunity to use bedrooms as workspaces. Susan Bland, MD of RBH Hospitality Management, said team members at one hotel had stood outside building sites with bacon baps as a way of instigating local conversation to generate business.
4C Hotel Group was the first to have an open lobby in its Holiday Express hotel as operators looked for space utilisation beyond eating and sleeping, said MD Al-karim Nathoo. Meanwhile, CitizenM has introduced a new corporate subscription service model: for a monthly fee companies can use spaces to meet and network. The scheme has been extended by creating a passport concept.
Moderator Julia Wyss, associate director of hotel investment properties at CBRE Hotels, said of course many of these facilities and services had a cost implication.
Nathoo of Beverley Group Holdings judged brands to have been very quick to react to the pandemic on safety protocols.
‘But that means putting additional cost on a business where the revenue is tight. We also saw quite deep discounting of prices, which did not really stimulate demand as the demand was just not there. Most of the distribution was coming through the Online Travel Agents (OTAs). It was a double whammy because you are paying the OTAs and the fees of the brands while saddled with all these other operational costs as a result of hygiene protocols.’ London & Regional Properties’ Taljaard, said:’ The disappointment has been we have not seen mass collaboration to beat up OTAs for ludicrously high commissions and paying double bubble to brands to get customers through the door.’
Empty beds syndrome
Hotel occupancy levels vary wildly depending on the location. Data provider STR told the AHC in Manchester that China had returned to 2019 levels whereas the US was stuck at 50% of pre-Covid rates. The company added that on average UK hotels were at 50% occupancy too. That means, more than half of the UK’s submarkets were trading at below that level. Some 10% of hotels in London are still closed. Room rates are on average 25-30% below 2019 prices.
SOURCE: STR, a division of CoStar Group
