Hotels or no hotels…

30th April 2020

Hospitality is one of L/E/I’s core activity areas and as any other business this one will very likely change. At times of an ongoing pandemic it is difficult to say, when it will be over and how it will change. Still, we would like to dare taking a look ahead, what `business as usual` within the hotel world might look like, especially with regard to the question: `how mid-size to large hotels (200-500 rooms, economic to upscale class) located basically in the city centers could be used after the crisis?`

One important aspect we see being discussed is `safety standards`. We see operators who proactively try to come up with innovative concepts (some of the ideas make sense, some seem to be marketing-purpose driven) while others wait and see what official regulations will define as new standards.

In our most recent article, we gave a potential outlook on the development of residentials resulting into remote working from home having a big share in the working life. Taking it from here let us assume a scenario where more people work from home and companies rent less office space on average and employees will only come to the office once or twice per week or less. Or even thought-further- there will be more employees who will be „distributed“ nationwide or even worldwide. By creating a remote infrastructure people will be in the position to accept job positions which they would otherwise not have accepted due to their geographical location.

Logically, the size and number of internal conference rooms would reduce accordingly. So far so good. But how will meetings basically be held? Anyone who has ever taken part in a conference call with more than three participants knows the issues of it. So, while remote working is becoming accepted by the market quite well and today’s employees have demonstrated effectiveness/productivity, the aspect of larger meetings still remains unsolved.

In addition to the technical process, there is also the human factor. It can be assumed that employers will want to hold and encourage personal meetings with and among their employees at a certain frequency in order to maintain vivid personal contact and bind the employees to the job. If conference rooms have also been reduced in size because they are redundant, then flexible options offered by business center may be more in demand. As a counterargument, however, these are often quite spartanly furnished, and the ambience is rather `neutral`. What would you as an employer do to create a positive atmosphere in connection with your company within the few but regular meetings? 

„We think that this is a very good business opportunity both for flexible conference/ office spaces, as well as for the hotels, also those located in different micro locations. Investing in more MICE model,  which means more conference rooms areas and create attractive commercial corporate packages not only to satisfy this new need, but to create such demand,“ says Aurelia Cieslinska from L/E/I, of which she is the CEO, helping L/E/I’s client to optimize their business models in order to either improve their profitability level a bit up to a complete restructuring.

But wouldn’t this mean that hotels are already moving into a kind of hybrid model and thus becoming `nicer day offices`? „Not quite, because a hotel still has the F&B area, which gives it the typical hotel character and at the same time allows people feeling like `getting out of their office`. By the way, this is a trend – meeting in hotels and restaurants for business meetings – which is not new, but which is likely to become even more popular. Let’s think ahead: what does the typical employee want who usually works in his home office all day long? He would rather have a meeting in a hotel followed by a nice lunch or dinner being part of the team spirit building than sitting in a day-rent office,“ says Aurelia. „Where will customer meetings take place when companies no longer have these large, imposing conference rooms because they simply no longer pay for themselves financially,“ adds Aurelia, implying that the business hotel will be the place to go.

„We are already receiving e-mails and calls from investors who are liquid enough to get through the crisis and want to continue investing into hotels. Of course, there are a number of those who wait for distressed assets opportunities that will slowly come onto the market as part of the consolidation process. But there are also investors AND hotel operating companies that are looking for ground hotel development project to be completed in 2-3 years’ time horizon, because companies will want to ‚grow‘ again after the crisis. I think that hotels will play an even bigger role after the crisis, at least in business life. But at the same time, I am convinced that hotels will have to rethink their business models”, mentions Aurelia, having created several models/ideas for L/E/I’s clients already being offered within the consulting services. 

Anna Lepper who is leading the DACH and UK’s team activities within  L/E/I structures and speaking to many potential investors in this area goes even further by quoting one German institutional investor: “We had one contact saying that he is curious to see, who `the creative ones` will be, hinting on the fact that each crisis generates winners and losers. For him it will be interesting to see how the hotel owners respond to massively changing market conditions and customer expectations.“

Other aspects, that investors takes into consideration but have no answer for yet, are how people’s private travel behavior will develop after the pandemic: how will the infrastructural conditions be with f.e. airlines having not made it through the pandemic? Will airports in small cities still all be open later? How present market conditions will impact pricing level of flights and trains? How will people feel at all in terms of traveling? Will there still be fear to leave the “hometown” or will the opposite happen? Maybe in the chase for normality, freedom, knowing the hotels care for their safety, they will want to travel even more than before, enjoying life and freedom to the full. Many questions, many uncertainties but to put everything in a nutshell: with the right ideas and changes: MANY OPPORTUNITIES.