This isn't the first time there has been a global recession, but this recession is certainly different, particularly by contrast to the 2008 financial crisis. On 19 May 2021 Howard Kennedy hosted an online check-in webinar chaired by Ed John (Partner and Head of Hotels at Howard Kennedy LLP) with guest speakers Hugh Taylor OBE (Chief Executive and Co-Founder of Michels & Taylor), Sarah Green (Co-Founder and Director of Hotel Finance) and Alex Sturgess (Director of Savills Hotel Agency team) whereby the resilience of hotels as an asset class in light of the Covid-19 pandemic was discussed.
Covid-19 vs 2008 Financial Crisis
The key distinction for the hotel industry between now and the 2008 financial crisis is obvious really; global travel completely shut down when a global pandemic was declared in March 2020. It wasn't that the industry's customer base no longer wanted to use hotels, it was that we couldn’t. The pandemic affected the whole sector and brought almost all operations to an immediate halt. The difficulty for the recovery of hotels stems from the lack of certainty surrounding when the world will find its "new normal". This time around, hoteliers are needing to be conservative in preparing their business plans for the coming months, especially in light of a number of the available support mechanisms coming to an end soon i.e. the business rates discount reducing to 66% from 1 July 2021 and the Government's Furlough scheme due to come to an end in September 2021.
It's not all negative though – the hotel industry, perhaps unlike high street retail assets, has a strong pent up demand from those will be rushing to return to hospitality post-pandemic. Our panel shared insight into the contrast between the recovery time for regional leisure hotels (relatively speedy but limited to holiday periods) to those hotels in UK business hubs such as London, Manchester and Edinburgh (which will be slower). The ongoing travel restrictions in the UK have seen staycations predominate, and at many regional leisure hotels, room rates are way over the par for 2019 and are fully booked for the summer months, with international travel to those areas largely back-filled by domestic demand. These hotels are already showing what a resilient investment they are. Paradoxically, the very thing that made hotels located in London and other business hubs so resilient – international travel – is the very thing which will mean a slightly longer recovery time. Our panel were confident that hotels in those locations will recover strongly in the next few years.
We asked our attendees at the check-in to share their opinions as to when the hotel market will return to its pre-Covid-19 state. Our poll yielded a clear expression of confidence, with most of our attendees agreeing that the industry will return to 2019 levels by 2023. Given the uncertain roadmap to recovery for the industry this result reflects the optimism that we will start to see our normality return over the next year.
Our panel discussed how the values of hotels as an asset class have held up strongly in contrast to both office and retail real estate. The pandemic has shown us how agile hotel businesses can be and how clever operators can really scale down costs for periods of low occupancy. With a widespread downsizing of office space, hotels have an opportunity to be the predominant providers of space for meetings and events. With the "race for space" and former commuters living further out, workers will increasingly need accommodation to stay over when they travel into work, which may in fact increase the demand for business stayovers. Hotels have been sheltered from the structural changes affecting retail and office real estate values, internet shopping and home-working, respectively, which have impacted rents in those areas.
Being adaptable to the needs of their customers is the way hoteliers can ensure their assets not only maintain, but will increase, value over the coming months and years. We asked our attendees what they believe will be the biggest changes we see in the hotel industry post-pandemic: flexible and co-working spaces, and smart hotels. Following the pandemic we all want to benefit from working smarter, not harder. Long-term, the hybrid way of working and living looks like a real positive for the hotel investments.
To view our webinar, please click here.