Windmills at the ready

We are in the somewhat strange position at the moment of the pandemic being the least of everyone’s issues in the sector. Indeed, if an economics historian were to peer at the transactions market through the chilling mists of time, would they have been able to see any traces of a pandemic at all?

This week we heard Carine Bonnejean, managing director, hotels, Christie & Co, tell a webinar hosted by the group that around 2.5% of European hotel deals were distressed. One suspects that the average reader of this column feels more distressed than that sitting on the sofa. 

As we have noted many times before, this cannot be, and a reckoning – a Quarter of Reckoning, in fact – must surely be on the way. Daniel Roger, managing director, Fattal Hotels Europe & UK, told the same event: “Right now there are no bargains, but it [a slew of distress] depends on the banks and deferred rents will, at some point, have to be paid back.”

The general feeling is that we will not see a flood of distress and that the banks have no appetite to make a series of enemies. So will this pandemic pass unfelt in the sector?

No. It’s not possible to go for months without income and there be no impact. The stress alone will scar a generation of those working in hotels.

But is it possible to have a pandemic which everyone brushes under the carpet? Where it’s the least of everyone’s issues? It seems increasingly so, particularly given the cost pressures which are now making themselves felt across the market to varying degrees; from business-ending to inconvenient. 

Roger put it quite simply: “Hotels will have to charge more – rising costs, energy costs, salary rises. People will adjust, they will not give up their holidays.” They might not give up their holidays in the bracket which goes on multiple trips, but you can’t expect the same uptake outside the 1%. And those not lucky enough to do ‘ski, sun and one other’ are likely to vanish altogether. 

As for the corporate market, it is certainly back on the road, but with definite reserve. Talking on a webinar last week (see how webinars are still a thing?) Robert Speirs, marketing manager at Cheval Collection, said that the group still reported plenty of business travel, but that he expected trips were harder to sign off. He also said that the group saw business travellers acting more like leisure travellers – in terms of length of stay, not slacking off, let it be clear. 

As for charging more? Speirs was clear that during the domestic boom in the past two summers the group hadn’t taken advantage, commenting: “By 2023 pent-up demand may have gone through the system and we want to make sure we haven’t pissed everyone off”.

The sector has never been under more pressure, but, unlike during the pandemic, there is no government support. Rising energy costs are no fault of hotels any more than a virus is, but the argument is that, well, this isn’t communism. And indeed it’s not and very few of us could carry off the collars, but taking large chunks of tax-paying businesses out of the revenue-generating business is hardly a long-term plan for flourishing economies.

One solution to energy issues, being touted by the UK government, is to get more hybrid. So hop to it, folks, and get that windmill up before the energy price cap shifts on Friday. But investors are taking this call to hybrid rather more to heart. 

Mixed use, or hybrid, is now less of something you do with a piece of real estate and more of an investment strategy. Hotels are a hedge against office and retail, but within that, ownership structures must be flexible. A hotel cannot have one market, one target. And it’s not just about having Work From Hotel in your lobby, everything, across operations to payments, must be open to change at short notice. We have also seen growth in hybrid leases, which split the risk and take pressure off the owner. 

We are now entering the true period of testing, when the sector is exhausted. We expected to see dramatic change by now, but that may be a story for a year or two’s time. 


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