Elections, Brexit, terrorism and labor issues are huge talking points in the European hotel industry, but ultimately hoteliers remain confident as they look to grow their portfolios and make acquisitions.
LONDON—Despite Brexit and contentious elections, the sun is shining, politics are stable and investors are scouring Europe for hotels and platforms in which to place capital.
During “The view from the boardroom” session at the Hotel Investment Conference Europe—commonly known as Hot.E—executives agreed the continent’s economic and geopolitical issues haven’t yet had a detrimental effect on hotel financing and development. But labor is a much bigger concern, panelists said.
Claus-Dieter Jandel, EVP and chief development officer of Deutsche Hospitality, said Germany proved over the last 30 to 40 years that democracy and politics are in alignment, even though the September 2017 election was a little more colorful.
Other elections throughout Europe also did not rattle the nerves of investors or guests, panelists said. Neither did terrorism, although there were obvious performance dips.
“(AccorHotels) did not see any impact in London, Barcelona,” said Jean-Jacques Dessors, CEO of Mediterranean, Middle East and Africa, Caribbean Islands and Indian Ocean at AccorHotels. “We are all getting used to the idea that attacks can happen anywhere. What was considered a major risk two years ago is considered a friend this year, and now in Continental Europe, we are seeing leisure and business growing at the same time.”
Peter Fulton, group president, Europe, Africa, Middle East and Southwest Asia of Hyatt Hotels Corporation, said some markets faced significant issues related to terrorism.
“We were particularly exposed in 2015 and 2016 in France, in Paris and on the coast,” he said. “We saw a total dilution of leisure travel, and there was a lot of reinforcement through the networks of what the risks were, how sensitive we are to news.”
Such wobbles allow hoteliers a chance to underline their messages, panelists said.
“Media gives us a great opportunity to counteract that,” Fulton said. “Our marketing spend was not diversified, and we focused a lot on distribution.”
Bernold Schroeder, COO of Europe for Kempinski Hotels—who started his current role in May after many years in Asia—said he thought Europe panicked too much.
“In Asia (the thinking) is more day-by-day, and more about opportunities,” he said. “Take Turkey, for instance. There is more blue-ocean thinking. They are entrepreneurial. No one there said (its current landscape) was a nightmare.”
Panelists said no one can predict the ultimate effects from Brexit, but they agreed that labor is and will be the biggest challenge going forward.
Wage increases are not keeping up with inflation, and that issue extends beyond Europe. As a result, global guests are seeking value when they travel, panelists said.
“In Singapore, wage increases are low, and salaries are 40% of revenue, so not all of Asia is double-digit growth,” Schroeder said. “We have three regions in Asia that give us more than a million guests, and thus hotel investors from those regions are following us. Appetite is there, but we must be clear that not all of it is coming to our regions.”
But the panel agreed investors are still confident.
“Interest rates will not grow in our key markets over the next two to three years,” Jandel said. “We will have more inflation, but we take care of that seriously with our development contracts, to have a managed portfolio of lease and management. We do not grow at the same time as inflation grows, and with this we feel quite safe. From 90% leases, we are now 52%/48%, so we will not be so exposed.”
Fulton said growth in the industry mirrors all these economic movements.
“It is incredible to think two years ago that Starwood (Hotels & Resorts Worldwide) would not exist today as we knew it,” he said. “Everyone remains looking at opportunities, and not just into hotels, but also in distribution as companies begin to diversify.
“There is a big push into franchising in Europe,” Fulton added.
Panelists said Chinese capital will still seek assets as its entrepreneurs work to get their money out of China.
Adapting with acquisitions
AccorHotels’ Dessors said the industry is far more “schizophrenic” than it has ever been, and that this new world requires far more capital.
“We’ve invested in alternative accommodations, catering, concierge, but always addressing consistency,” he said. “We have a very strong department looking into new opportunities. We do not want to be surprised by developments but to be ready. Hotels are the way to communicate with local communities.”
Fulton reiterated this requirement to research and said Hyatt zeroed in on what it considered a couple of trends.
“One is wellness, resulting in us purchasing Miraval (Resorts) and … a minority holding in (vacation rental company) Oasis, which is being integrated into our system as we speak,” Fulton said. “This will be very complementary. We’re moving into adjacent spaces.”
Deutsche Hospitality’s Jandel warned not to jump into more exotic acquisitions just for the sake of doing so.
“We own the best barber shop in Europe in (the Steigenberger Frankfurter Hof), and we are proud of that, but we would not open a barber shop in every hotel,” he said. “We are thinking of a fourth and fifth brand, but then it is finished.”
Kempinski is also happy to focus on a few brands, Schroeder said, but the company has not discounted searching for assets.
“We want a tangible number of very strong assets, but we have seen opportunities in the boarding-house concept,” he said. “One- to three-month stays are very attractive to us. Brand residences, too, as investors across the world do not know the real estate market in some destinations, but they do know the brands.”
Fulton said Hyatt aims to continue to diversify its offerings, too.
“Hyatt is unusual in that it has focused on the high end, and that it is where we will continue,” he said. “There is no desire to just add brands, which have to be relevant to where we want to take the company in the long term. But we had nothing in extended stay, in select service, and we have started talking about lifestyle, which has become a must-have.”