Building Blocks of Hospitality Looking Increasingly Future-Proof
Date: February 3, 2022
The following interview appeared in Hotel & Restaurant Times here.
John Fareed is Global Chairman of Horwath HTL – a global company that has been running for over a century and is widely recognised as the world’s leading hotel, tourism and leisure consultancy.
Together with James Chappell – Global Business Director – they have been visiting Ireland recently, working on an interesting new take, like a pair of bible salesmen spreading the good news about the hotel and catering sector.
The men from Horwath HTL aren’t selling any religious message of course – but a very secular one: that of the future in commercial bricks and mortar lying much less in office space but in buildings devoted to leisure.
Long-term investment portfolios have traditionally favoured city-centre or town-centre office space as a reliable anchor to their profit base, but times are changing and the recent seismic shifts created by Pandemic policy-making have altered the property investment landscape considerably: Companies who have vacated their expensive large central office spaces during the Covid era have often found questioned the feasibility of returning to their city-centre castle. Now that remote working has proven a success, there is far less need of the large central office than there used to be and that seems to be true across most sectors.
At Horwath HTL, they believe that there are permanent changes underfoot and that from now on, the focus will be increasingly on hotel and leisure and away from the relatively moribund office-space sector.
The have over fifty offices with a presence in forty-two countries, covering all aspects of HTL (Hotel, Tourism and Leisure).
“We do everything from asset management to appraisal valuation, to development,” says Fareed, emphasising that their business is interested in all assets associated with the hotel and leisure sector but not with brokerage (i.e. buying and selling hotels). “This makes us unique,” says Fareed, “and we’re independent.”
“In the fifty firms in the network, I’m the corporate guy sitting in the middle,” explains Chappell, “so all of those functions that you would imagine would go towards that network of fifty plus offices, that’s what my team and I are responsible for…“So if you’re developing a hotel and you need to borrow €50 million from the bank, the bank will come to us and say, ‘Is this going to work? Should we lend these people €50 million?’ Or if someone is going to buy or sell a hotel and they want to know how much the hotel is worth, they come to us and we can provide them with a valuation.”
Maintaining independence is key to maintaining a professional reputation and surviving in this business and that independence has clearly been a cornerstone of their continued survival since 1915. A number of their competitors in this field do get involved in brokerage, which is a clear conflict of interest, Fareed and Chappell point out. You simply cannot offer an independent valuation of the assets of a hotel if you also stand to gain from its sale or from its purchase. Some competing firms even have their own hotel funds, they say; putting them in a position of directly competing with their own clients, playing the roles of both poacher and gamekeeper.
The real news with the hospitality sector, however, is the change in its net worth – both perceived and real – since the advent of the Covid Pandemic.
“In the days before the Pandemic,” says Fareed, “the hotel or hospitality industry as an asset was seen as the red-headed step-child. With this shift (in perception), it has become more and more valuable because people understand that it’s a business with not just real-estate assets but as an ongoing enterprise. Whereas, we’ve seen what has happened within the office and retail space.”
Ironically, the hospitality industry was one of the most directly and worst affected of all the industries, but it has shown remarkable resistance in not only surviving the Pandemic but bouncing back with an undeniable energy. Office space, on the other hand, seems to have suffered permanent damage from the same phenomenon, with the right to work from home being established in a number of countries.
Chappell believes, however, that Covid didn’t change anything: “I think it has accelerated the trends that were already happening. So if you look at the world pre-Covid, cash was already on the way out. If you can imagine, in ten years’ time it being a completely cash-less society, I think that Covid has really accelerated that process.
“Secondly, if you take what has happened with retail, the fact is that people had been slowly moving towards online shopping – having everything delivered through Amazon or whoever… Covid really accelerated that process. Same thing with commercial real estate; people were already working flexibly, not necessarily having to go into the office every single day. That was definitely a trend and Covid really accelerated that process.”
Where hotel real estate really stands out on its own, Chappell adds, is in looking at it through the lens of its future perspective.
“When you look at offices or retail or any of these standard classes of property and look at the future of those, it’s not looking great,” says Chappell. “I would argue that everybody you speak to is looking at travel and tourism as being on an upward growth trajectory… For example, with Ireland getting rid of the PCR test for coming into the country, everybody expects this shift in the state of play in the hospitality sector will result in a huge rebound… I think that what investors are realising is that the risk-reward ratio is already better in hospitality assets.”
“I would also add that the proof is in the pudding as it relates to distressed assets,” says Fareed. “There are lot of distressed assets on the commercial and/or retail front. But if you look at the hotel industry, it’s a different story.”
Fareed says that they receive calls from investors around the world who are actively seeking distressed assets in the hospitality industry, wherever they might be; looking to pick up some of the pieces of what is perceived by many as a shattered hospitality sector. But, says Fareed, there simply aren’t any—at least at this time.
The only fundamental changes to the way in which the hospitality sector works, the Horwath HTL men argue, are resulting in enhancing the service for customers and in reducing the cost base in a notoriously people-intensive industry: more flexible check-in times in hotels and technology being used to facilitate those who prefer to have less interaction and more efficiency, such as the provision of room keys directly to one’s phone or ordering food and paying for it via one’s mobile phone.
Another phenomenon that has been gleaned from the Pandemic experience and which also casts a positive glow over the future of the hospitality industry is that of people learning to appreciate life and, more specifically, of appreciating living in the moment and taking some time off; of not putting off the urge to take that hotel break while it’s possible.
“The crossover of people spending more on experiences than on goods and services happened about fifteen years ago,” Chappell points out. “Since then, the share of spend on experiences has only increased…
“To me, it’s all about future-proofing and looking to see which of these industries are the most future-proofed. What do people want to do? Do people want to travel? Do they want to go places? Stay in places? Absolutely. That gives the whole industry a future in a way that a lot of other industries don’t have.”