Tourism and Hotel Investment: forecasts, performance and exciting future trends
Wednesday, 3rd June 2020

Some temporary turbulence

The extreme effects of COVID-19 induced lockdowns on all the world’s advanced societies and economies make it difficult to focus on real estate prospects beyond the short-term.  However, this SPR webinar painted a positive view of expectations for tourism and hotel real estate over the longer term.

In the first of two presentations, David Goodger of Tourism Economics at the Oxford Economics Group set out baseline forecasts indicating that global GDP would regain 2019 levels early next year and that European travel restrictions would have largely ended by late 2020.  In the short-term he expects domestic travellers to provide the initial revival in tourism and the demand for hotel accommodation across Europe, as long-haul international travel is unlikely to recover much before 2023.  This suggests that hotels in more provincial locations are likely to fare better at first, as these generally rely less on long-haul travel than big city destinations.

Joe Stather of Hotels EMEA Investment Advisory Services at CBRE then cast his mind back to the positive growth prospects the hotel sector enjoyed at the end of 2019, which he proposed should resurface once the world returns to economic growth and consumers reassert their earlier trend towards spending more on experiences rather than possessions.  UK provincial hotels had been seeing strong growth in REVPAR (revenue per available room) while limited service and lifestyle concepts were taking a bigger share of the market.  These healthy conditions have also been reflected by a growing role for hotels in institutional real estate investment – their share rose from 4% in 2007 to 11% in 2019.  Stather believes that the majority of investors will maintain their commitment to the sector despite the current distress, with most stakeholders in the industry taking a collaborative approach in order to weather the storm.

The rest of the webinar was devoted to a panel discussion led by Cleo Folkes of Property Overview, who moderated the session.  Exploring the potential attractions of hotel real estate further, William Gibbs of Sir Richard Sutton Ltd, a family office investing across the spectrum of asset types, suggested that it was diversification benefits and the chance to take on some operating risk and working with those running hotels that had proved enticing. Meanwhile Eva Chan of Wyndham Hotels and Resorts noted that more generalist investors had been coming into the sector as a result of its growing transparency and maturity, although they still need to carefully weigh up the pros and cons of different management structures when investing, as these can have a big impact on patterns of performance.

Asked to consider how the COVID pandemic might affect the sector’s pattern of future development, Goodger suggested that leisure travel might well revive sooner than business travel, as a challenging economic environment could see businesses bearing down on costs – this could particularly impact on events travel – but he expected it would bounce back in the end.

Some of the SPR members who joined this webinar are clearly keen to start flying again, with an online poll showing 35% were prepared to do so as soon as restrictions are lifted, although 42% intend to wait until 2021 or later.  Members also supported Goodger’s argument on leisure vs. business travel, with most indicating that their first trip was likely to be for leisure purposes and the majority of these favoured domestic travel.

If the pandemic has a silver lining for hotels, it could be that most operators are being forced to radically trim their cost base. Gibbs explained that this trend had already started before the crisis, when many already expected some sort of market correction after the long boom period that preceded it.  Those that survive should emerge fitter and more efficient.

Tim Horsey