By Anthony van Hoffen, partner, and Katie Thomas, associate, at law firm Lewis Silkin
The impact of the pandemic on the hotel and leisure sector was, arguably, felt stronger than in any other single area of the economy.With no ability to pivot their business to ‘online’, and no prospect that ‘working from home’ might provide a temporary solution, the sector was faced with an unprecedented fight for survival.The fact that most of the players in the industry have not only survived, but many are now looking at growth and development, is testament to the adaptability, resilience and sheer hard work of those in the sector.
The experience of many hoteliers is that, following the initial lockdown and the lifting of restrictions on 4 July 2020, their market had shifted considerably. International travel had obviously all but dried up and business occupancy was non-existent as in-person meetings were switched to online calls. Consequently, demand started to increase for different types of hotel offerings and the longer- stay market, where quarantine requirements could be met, in accommodation which already had all of the technology and connectivity required to conduct business remotely.The industry is now addressing shifts in lifestyle and working behaviours that have taken place over the course of the pandemic and taking advantage of new opportunities.
Over the summer of 2020, and throughout 2021, the demand for regional hotels in the UK, especially luxury hotels with leisure facilities, has been in high demand for the so-called ‘staycation’. And this trend looks to be continuing, as evidenced by Hyatt’s’ stated increased focus on luxury leisure. It’s not just luxury hotel brands that are benefitting from ‘staycations’ either – budget hotel group,Travelodge, added 15 hotels to its portfolio in the third quarter of 2021, to take its total holdings to over 570 hotels. It reported a 9.9% increase in revenue in the same period, driven by the strong domestic leisure market, and is looking to open a further 6 hotels in 2022.
Where, though, has this left the traditional City business hotel? Just as reports of increasing overseas travel seemed to bode well for both the business and luxury/boutique hotel market, came the news of Omicron variant, and it is very early days to start making predictions of how this will play out. Prior to this, two options seemed to be emerging – either upgrading existing hotels that offer the ability to both be at leisure and do business (again, the Kimpton and VOCO brands that IHG are rolling out are signs of this type of hotel), or look to take advantage of potential relaxation in the planning systems to convert to blended-use buildings with office, residential and hotel space all on the same site.This approach could take advantage of the increasingly available office space in city centres.The Ned in central London is an excellent example – previously B Grade office space, it has now been transformed into a 5-star luxury hotel with a member’s club, 10 restaurants, gym and spa!
So, what does the investment forecast look like? According to Savills, UK hotel investment is set for a bumper year in 2022 with transactions forecast to reach £4.5 billion (which is on track to beat the 15-year average of £4.22billion).This is in part caused by the confidence that international visitors will start to flood back to the UK (and particularly London) as borders re-open and travel restrictions start to ease in the near future (although the discovery of the Omicron variant may see this part of the recovery delayed).
One last word – no article on development trends would be complete without it! – and that is the focus on ESG. This is both from the contractor/developer perspective but also from the hotel operator/franchisee perspective. Not only must the physical building look to comply with the ever-increasing and pressing move to higher environmental standards and carbon-neutrality, and the location ensure better accessibility by public transport, but the contractor/employer has to meet the social criteria demanded to attract both investors and employees, especially in the post-Brexit dearth of experienced hotel staff. According to Savills, ESG compliant hotels are also likely to see tighter yields due to a rise in demand.
The opportunities to rise phoenix-like from the ashes of the pandemic are certainly there and initial signs are that the hotel sector is moving forward and has the adaptability and foresight to meet the challenge.