Four months into his role CEO of IHG Hotels & Resorts, Elie Maalouf is ready to capitalize on the wall of capital he believes is heading to the hotel industry.
During a keynote address at November’s Alvarez & Marsal’s European Hospitality Investment Conference, Maalouf said not long ago 60% of real estate investment was directed at the retail and office sectors, but that has changed decisively since the end of the pandemic.
“Now office will likely constitute 0%. Blackstone and Starwood Capital have put together $30 billion, and 0% of that will go into office. There is tailwind for hotels,” he said.
Maalouf said reasons for a positive hotel industry outlook include record average daily rates, occupancy that is almost back to 2019 levels and likely will catch up to them very soon and rapidly increasing business travel demand.
“And this is before we see the return of international. Money has to go into real estate, so in the long term, things look very good,” he said. “In the short term, we do have to take into account inflation, high interest rates and traditional lenders not lending so much to hospitality, but that is a short-term adjustment.
“The fundamentals are good, and the long-term picture for hotels is good,” he added.
Guest fundamentals and demographics are equally robust.
“Travel is more investable than it used to be, [IHG] now has 19 brands, not because I am sitting at a conference and we need a new headline, but because there is a meaningful pocket of demand that we are not addressing with a product,” he said.
Maalouf said a reappraisal of IHG’s luxury and lifestyle portfolio does not mean distancing the firm from its legacy brands.
“InterContinental is a brand 80 years in the making, with 215 hotels but 80 in the pipeline,” he said. “Like our other brands, it has been designed to be future-proof.”
China is another focus for the U.K.-based global hotel company.
“China does not need to be as full of hotels as the U.S. to be a success. China remains the future. The reason Germany is doing poorly is that China is building more cars than Germany now and doing it more cheaply and very well,” he said.
Macro Machinations
With the consensus that most developed countries have reached a peak in terms of interest rates, a sense of certainty has returned to the hotel industry, Maalouf said.
“Certainty is very valuable in investment decisions. There is a great wall of investment in real estate, and the longer the quiet period, the stronger capital’s return. I do not know if that return will be in 2024 or 2025, but it is coming.
“And you do not want to get moving if everyone else already has moved,” he said.
Maalouf said there's still room for hotel rate growth.
“Room rates are pretty much where inflation has been. Yes, it has been high, but when compared against airfares, ADR has not moved as high. There is still more room for increases,” he said.
“We have a brand for you that is affordable and not so affordable. … Personalization and categorization, these are what will continue to change, and that is where artificial intelligence will come into play,” he added.
Maalouf said he has his teams focused on how to help travelers fulfill their environmental, social and governance goals.
“Still 50% of our business comes from group, and well over half of our large corporate customers are interested in the specifics of our de-carbonization plans, as they have their own ESG goals. Our goal is to show them how we are doing that and how we are helping them to reach their targets.
He added that there's plenty of technology and “human ingenuity” that will aid businesses in ESG efforts.
“The global theme is that we have gone past the stage of revenge travel, with the idea now that this travel is sustainable. Most corporates have told us they want to spend more, as they want to expand their businesses and meet more people,” he said. “And there is the recognition that supply is low. Investors see the investment they are making will have more value. We are seeing the raising of debt to fill this space, and it is about to break out.
“And [IHG does] not want to be last,” he added.