Diversification is a sound strategy for spreading risk in an economic recovery, but it must be managed with heightened diligence.
During a panel at the recent Deloitte European Hotel Industry Conference, Naomi Heaton, CEO and founder of The Other House, said market diversification in the hotel industry isn't enough.
“Hotels have for too long plowed the same furrow. A hotel needs brand value more than ever, but it also needs a personality. It needs to speak to the consumer and say something about them,” Heaton said.
Heaton's company, The Other House, has a property in South Kensington, London, and another scheduled to open in the Covent Garden district in winter 2024. She said customers want so much more from a hotel on this side of the pandemic.
“Hotels are highly serviced but do not have much personality," she said. "The younger generation want a sense of place and more service on demand, so we wanted to combine the two and have a product where you can stay for a day, a week, a month or a year. Why limit anyone?”
This requirement for diversification from both guest and hotelier is not lost on investors, said Lauren Okada Young, senior vice president of real estate investments at Toronto-based Brookfield Asset Management.
“We invest across different sectors and have an operationally intensive approach, and hospitality is the most operational of the asset classes but provides the most value,” she said.
One of Brookfield’s hospitality investments is in premium holiday-park accommodations and entertainment brand Center Parcs, which it bought in 2015 for 2.4 billion pounds sterling ($2.8 billion).
“It is quite premium to other holiday villages and has high occupancy, stable cash flows and resilience,” she said.
The Canadian asset management company also has investments in serviced-apartment firm Edyn, which has three brands — Cove, Locke and Saco — and in the past 18 months has invested more in traditional hotels.
“It is similar to Center Parc in that it is as neat a business model, very attractive blends of the best of all worlds, hotels and residential projects, and which we have experience in both. Again, this provides more stability,” Okada Young said.
“Also, classic hotels, a move into Spanish hospitality, some 3,000 keys, in a partnership with Experimental Group out of Paris. That will be at the higher end of the spectrum, as we have all seen that luxury and economy have outperformed the other segments,” she added.
If hoteliers and investors can adapt, so can third-party vendors, including online travel agencies.
Abhijit Prasad, vice president of Fintech risk products at Booking.com, said the IT platform is moving more into the payments space, not just the bookings space.
“Seventy-five percent of our correspondence was on payments, so we saw room to help ease consumers' financial friction … over currency, ease, cancellation and booking management, and to increase conversion for partners,” he said.
Flowing Streams
Panelists said tapping into every possible market is important amid economic crises and as demand types fluctuate.
Heaton said she is focusing on slow travel, which has grown from a small trickle to a forcible revenue stream.
“Business and group are coming back and staying for longer, but they want something different," she said. "We do not have rooms, but ‘club flats,’ where you walk through the sitting rooms to get to the bedrooms and bathrooms, as you would at your own home. We’re disrupting but only because consumer wants are changing."
Okada Young said partnering with local, well-known operators helps improve a property’s offerings while allowing Brookfield to concentrate on investment.
“Sixty percent of Center Parcs' revenue is from accommodations, so a lot of thinking goes on how to regenerate leisure activities, but it takes significant [capital expenditure] injection. It is important, but it comes cost, some 10% of revenue,” she said.
Heaton said the trick is to create non-rooms revenue streams that are authentically distinct.
“South Kensington is a very affluent area; there is still not that hip cocktail bar, which you had to go to the West End to find,” she said, referring to The Other House’s cocktail bar, the Owl & Monkey.
Prasad said Booking.com is providing some capital for CapEx, including by investing in cyclical hospitality businesses, such as summer offerings at ski resorts.
The amount of data Booking.com has can stabilize risk in terms of any investment, he added.
Okada Young said Center Parc’s long booking window, which is up to 18 months, provides good visibility to predict occupancy and operational costs and strategy.
“A lot of hotels do not have this,” she said.
Heaton said her hotel’s mix of business, leisure, transient and long-stay guests also resulted in a great ability to stabilize revenue and operations.
“But a lot of tech is required,” she added.