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Real Estate

Global Hospitality Cautious Optimism

January 21, 2022

COVID-19 Dismantled the Global Hospitality Industry on Many Levels

In recent years, Global Tourism has fuelled exponential growth in the hospitality sector, but Covid-19 and resulting precautionary and necessary lockdowns dismantled the industry. The US accounts for most of global tourism and resultant spending, and for countries such as Italy and Spain, tourism represents upwards of 20% of GDP and thus key to their economies. This sector faces significant headwinds both near and longer term; however, there is significant reason for optimism. 

Unprecedented Fiscal Policy Response from Sovereignties Resulted in Sharp Unprecedented Economic Activity

The global pandemic prompted unprecedented policy responses from central banks globally and corresponding world leaders. Indeed, in less than three months after March 31, 2020, interest rates were cut to zero and enhanced the global economy with liquidity. In addition, fiscal measures including massive government spending initiatives including subsidies were initiated to assist businesses and the general populous. These measures resulted in a sharp bounce in economic activity from unprecedented declines in Q2 2020.

Covid-19 forced the near or complete meltdown of most every hotel across the globe. At the height of the lock-down, occupancy rates were between 0% and 20% industrywide. To frame this properly, most operators require a minimum occupancy percentage of at least 40% or more to simply break-even. Once shuttered, it is not a simple task to just re-open as there are many items that must be addressed, not least of which appropriate staffing as well as implementing necessary health and precautionary cleaning guidelines. Re-opening was flagged as the #1 near-term challenge facing the industry. In addition, determining appropriate room pricing remains a key issue as significant supply of hotel rooms comes on-line after being closed.

Vaccines and the Softening of Travel Restrictions Will Result in a Rebound in Certain Sectors in the Hospitality Industry

In recent months, the roll-out of vaccines and the lifting of travel restrictions held out hope for the hospitality industry to benefit from an upsurge in travel spending. This was based on significant pent-up demand for international holiday travel following the prolonged lock down since March 2020. For example, this past July and August, hot spots in Greece, Spain and Portugal witnessed sharp rises in travel and hotel demand. Moreover, as of November 8, 2021, European and UK citizens are now able to travel to the US after being banned for 2 years just in time for the holiday season. In a surprising development, business travel has picked up quite significantly, despite concerns that it would be dead for years to come as more people opt to work at home and use virtual apps to conduct meetings. For example, business conferences have shown increased activity as people want to meet in person. Nevertheless. with the efficiency and productivity of virtual meeting platforms, business travel is unlikely to return to pre-pandemic levels anytime soon.

Over time COVID-19 will be Controlled, but not Eliminated

Despite renewed optimism, just as certain segments of the global hospitality community is recovering, a new COVID variant, Omicron has initially resulted in renewed travel restrictions going into the holiday season and new year. Over time, with the assistance of vaccines and booster shots COVID-19 will be neutralised, but not eliminated and the global hospitality industry will rebound accordingly. However, key trends facing the industry prior to pre pandemic levels will likely become even more pronounced and will need to be addressed for the survival and growth of larger  companies.

The Large Operators and Niche Hotels are Best Positioned

Large operators with depleted but strong balance sheets and solid liquidity positions are best positioned to benefit from the expected rebound in activity. There will likely be consolidation within the industry. Niche boutique hotels offering health and wellness focused accommodations and experiences will become increasingly in demand as well as those offering experiential activities. Smaller operators without a differentiated product offering will likely not survive presenting opportunities for others to acquire the asset(s) or reposition them into other real estate asset classes such as residential.

Traditional Hotels are Dinosaurs and Will Need to Embrace New Ways to Attract and Retain Visitors

The traditional hotel business of renting a small room and bed is a dinosaur. Even the large well-known brands need to adopt to changing customer preferences especially as a new generation of global nomads and Generation Z become a more significant force.  Hotels will need to explore ways to enhance the value of their brand, attract visitors, increase customer loyalty, and capture a greater share of their wallet.  Competitive threats from new entrants including AirBnB and start-ups are disrupting the marketplace and placing stress on the traditional ways hotels market themselves and do business. 

New Technologies and Personalised Experiences and are Key to the Future 

Technology especially smart technology is becoming more critical to the success of the industry. COVID-19 has accelerated the use of mobile technologies including the use of mobile phones for guest check-in, room access, food delivery, and other services. Mobile apps are increasingly being used for guest loyalty programs and cross selling. The guest data captured on these mobile platforms will be important in tracking customer feedback and spending pattens. The use of AI will allow for targeted marketing material and enhancing the overall customer personalised experience.  Virtual Reality in the hospitality industry will allow customers to experience the hotel and nearby attractions. Hotels will need to be focused on its digital and social media presence. 

The hotel and hospitality industry will need to be more about personalised experiences. All-inclusive, theme-based experiences tailored to customer interests will be a growth business. In addition, COVID-19 has prompted a focus on niche boutique hotels focused on health and wellness and outdoor activities including a different architectural model to achieve more distance between patrons.  Global awareness regarding sustainability and environmental issues will lead to growth in Glamping and other similar experiences which has already begun in select markets.

In conclusion, the Covid-19 pandemic has decimated the global hospitality industry, but there is reason for optimism most notably the transformation of the traditional hotel model and the emergence of new and dynamic product offerings and consumer experiences helped by smart technologies and a focus on health and well-being. 

Peter Plaut is consistently recognized as a leader in the industry. Since the Covid-19 pandemic locked down the global economy, Peter has executed engagements in real estate development financing across various assets classes including residential, mixed use, office, and hospitality. During the Great Financial Crisis of 2008, he was ranked as one of the Top Rising Stars of Hedge Funds. This track record is a recognition of his ability to manage through crisis and is cycle tested.  In early 2020, his team at Wimmer Financial was awarded Real Estate Investment Bank of The Year ahead of BNP, Credit Suisse and UBS. Recently, Wimmer Family Office won 2021s leading Family Offices Specialist award.


Peter Plaut
Peter Plaut
Executive Director
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