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Revolution or Evolution – Protect & Survive

The annual Hogan Lovells CBRE Hotel Conference 2017

The threat from terrorism will continue well into the next decade and every country and major organisation needs a counter-terrorism plan. This was the message from Richard Walton our key note speaker and former commander at New Scotland Yard and Head of the Counter Terrorism Command.  The hotel industry needs to be vigilant and ensure in addition to physical security measures such as CCTV and protective bollards, time and money is invested in carrying out detailed risk assessments and, importantly, penetrative assessments (drills to work out how far into a hotel a terrorist attacker could venture before being stopped).

Our next speaker Professor Richard Barkham from CBRE moved the conversation on to the economic threats facing the industry. Despite the seismic geopolitical events of 2016 and more of the same to possibly follow in 2017 with the rise of non-centrist parties in Europe, Richard’s comforting view was that it was the more predictable business cycle rather than world events that determines hotel trade. Looking at past data there was a “very clear” inverse trend between RevPar and unemployment. We are currently approaching full employment and RevPar – trade is likely to continue to improve, but we may reach the peak of the cycle in late 2018. The advice to hoteliers is not to shut up shop but get your balance sheet in order.

There has been occupancy and RevPar growth in 2017 in both the London and regional UK markets, according to data from David Bailey, Senior Director of CBRE Hotels. In 2017 more than 12,000 new rooms are going to come on stream and this will be one of the biggest supply jumps for a long time. New supply appears to be concentrated in regions such as Manchester and Edinburgh and also focused on the budget hotel and serviced apartments sector.

Katie Dunn of Hogan Lovells provided an outline of issues and recent regulations on cyber security – more information can be found at our dedicated cyber security website http://www.hoganlovells.com/en/knowledge/topic-centers/cybersecurity-solutions. Angus Coulter, head of our Antitrust Competition Practice also gave an update on the latest thinking on competition and rate parity issues relevant to the industry. Jane Lees, head of EMEA Valuations at CBRE looked at the net initial yields achieved on major hotel deals in 2016.

Andrew Sangster, editor of Hotel Analyst, moderated a panel with Terri Scriven (Head of Hospitality Google), Thomas Dubaere (MD of AccorHotels), John Brennan (CEO of Amaris Hospitality which is owned by Lone Star)) and Ufi Ibrahim (CEO of British Hospitality Association). The panel looked at how threats create opportunities.

• Thomas – following Brexit the UK hotel market has continued to do well but the industry needs to be passionate and customer-guest centric. It also needs to invest in its people and cannot rely on the government – Accor has its own academy for training staff. Accor is also diversifying and investing in technology platforms in the private rented sector. Further, it is creating communities in previously idle hotel space – an example is a coffee shop entrance instead of a lobby at its recent Cambridge hotel and encouraging customers who are not guests to come into hotel and use lobby space for meetings and social gatherings.

• John – there has been so much chatter on Brexit and businesses are coming to the conclusion they need to stop talking and get on with developing and managing their business. The hotel sector also needs to actively engage with the government on the way ahead.

• Ufi – continued the idea of engagement with the government by saying immigration policy post Brexit is the single biggest threat to the industry –  15% of the industry or approximately 700,000 workers are EU nationals who would not be entitled to remain in the UK under the current work permit system. The hotel industry needs a minimum of 50,000 new workers a year for growth and to cope with churn. The government understands this and has suggested it will try and obtain a 10 year transition period following Brexit, but this is likely to come at a cost with the government demanding that the industry invests in training and hiring UK staff and contributing towards border protection.

• Terri – highlighted that the hotel sector has not made full use of technology and using this to optimise the customer experience and efficiency in the same way as other sectors. Google searches for Airbnb and holiday rentals are growing at 12-13% per year while google searches for traditional hotels are only increasing around 8-9% a year.

Jackie Newstead, our Global Head of Real Estate and partner in the hotels practice, surveyed the delegates’ views and found them optimistic about the prospects of the operating and investment market in the coming year.