JLL PROVIDES YOU WITH THE LATEST INFORMATION IN THE HOTEL BUSINESS SECTOR
In these five articles, JLL share their knowledge and expertise on some of the hot topics and debates within hospitality…
THE HOTTEST LOCATIONS IN HOSPITALITY
Geopolitical and economic changes are combining with structural shifts caused by technological disruption, changing leisure patterns and new market players to transform the global hotel industry. Established international destinations continue to dominate the hospitality landscape. Yet dynamic, emerging hotspots – particularly in the Middle East and Asia – are gaining ground.
According to recent analysis from JLL, there are five categories of cities to watch within the global arena, each presenting hotel investors and operators with their own combination of risks and opportunities.
The Global Giants
The research reveals that an elite group of nine cities dominate the industry, accounting for almost a quarter of the total number of rooms available, and nearly half the total global investment going into these 106 city markets.
“Within this group, London and New York – with their deep concentrations of business and leisure activities – are the undisputed leaders,” says Lauro Ferroni, Global Head of Hotels & Hospitality Research at JLL. “Their ability to support a large and diverse hospitality industry has seen them attract almost 30 per cent of the total hotel investment across these cities, amounting to more than US$23 billion between 2014 and 2016.”
Shanghai, Beijing, Guangzhou, Bangkok and Dubai have all emerged as successful growth cities, according to the report. Highly dynamic and quickly gaining global scale, these hotel markets continue to increase their visibility on the global stage, making them attractive targets for investors.
Shenzhen’s strong performance indicators and growing demand suggest it could be next to join these Rising Giants. Moscow and Seoul are other candidates. “However, the fortunes of Istanbul and Sao Paulo, which recently dropped out of this group, highlight the vulnerability of such markets to geopolitical tensions and economic headwinds,” says Jeremy Kelly, Global Research Director at JLL.
Gateway cities enjoy strong investor interest, attracting roughly 25 per cent of hotel investment across the cities included. But their markets, while significant, are on a smaller scale to the Global Giants.
The report shows U.S. cities dominating this Gateways group, demonstrating the depth of hotel room supply and demand across the United States. San Francisco, Chicago and Miami lead the way. Dallas is also coming to the fore as a dynamic momentum market, having seen both robust performance in recent years and a significant pipeline of new rooms.
Munich, Berlin, Amsterdam and Sydney are among the leading destinations in terms of investment intensity (investment volumes as a proportion of city GDP). Sydney in particular is set for a wave of new supply from 2017 onwards, which will likely be matched by high levels of occupancy and demand.
New World Cities
These highly liveable, mid-sized cities are gaining greater attention from the hotel sector. Denver, Seattle and Vancouver rank among the world’s top 30 investment destinations for hotels. Construction is especially active in Seattle and Denver, resulting in a big increase in new hotel room supply.
Melbourne is also seeing high levels of new supply. Its exceptional occupancy rates mean the city is well positioned to absorb the increase in new rooms.
According to the research, some of the world’s most dynamic hotel markets can be found in the Middle East, and South and Southeast Asia.
Following in the footsteps of Dubai, the Saudi Arabian cities of Riyadh and Jeddah are each set to double their hotel room supply in the coming years.
Jeddah, as the principal gateway to Mecca, is set to be the major beneficiary of the decision to relax the quota on religious tourists visiting Islam’s holiest city. However, the exceptional supply pipeline in both Riyadh and Jeddah is impacting performance.
In terms of emerging markets, Kelly points to Southeast Asia where Ho Chi Minh City, Hanoi and Manila rank among the top performers.
“As they gain global visibility and become more fully integrated into global networks, they continue to attract high levels of foreign direct investment, helping boost the cities’ hotel sectors,” he says.
Exceptional socio-economic growth in India is buoying the prospects of the hotel markets in the country’s leading cities. The top tier of Delhi, Mumbai and Bangalore are witnessing strong momentum, as are the hubs of Hyderabad, Chennai and Kolkata. These cities combine rapid growth with high levels of new supply and growing demand. Nevertheless, to date they are yet to attract large-scale real estate investment into their hotel sector.
Meanwhile, Chengdu is leading the charge among China’s second-tier cities. It is one of the more balanced of China’s cities in terms of demand drivers. However, it has the largest supply pipeline in the country, putting it at risk of oversupply.
Staying in an air-conditioned luxury shelter at a music festival or a bespoke yurt in the Andes seemed like a distant thought even just a few years ago.
Now, both experiences have become a reality for a small but growing group of festival-goers and travellers thanks to pop-up hotels.
“Pop-up hotels offer adventure seekers an exciting travel experience they can post about on their social media accounts,” says Geraldine Guichardo, Americas Head of Hotels Research for JLL. “Music festivals in particular are driving the opportunity for pop-up hotels to exist.”
Marriott’s partnership with Coachella, a California music festival that takes place in the Colorado Desert, provides an ideal way to bring a perk to its loyal members — glamping (glamorous camping) tents complete with electricity, air-conditioning, and comfy beds. With only eight of these tents set up for the 2017 event, potential guests could either purchase a tent night or use loyalty reward points to bid on a chance to win a one-night stay.
“One of the strongest benefits a brand like Marriott gains from having pop-up hotels is that it can design and personalise each tent by recreating a brand from its portfolio,” says Guichardo. “Another benefit is the potential of winning new guests. A guest that has never stayed in a Marriott hotel may be more inclined to stay in a Marriott after having experienced the brand through a pop-hotel. The allure comes from having experienced the brand in a unique, non-traditional tent environment.”
Offering unique experiences around the world
While big brands are starting to experiment with pop-ups, the space is dominated by boutique groups. Take The Pop-up Hotel, which provides festival accommodations mainly in the UK and has plans for expansion in Australia, the Caribbean, and The Maldives. While thousands of music fans brave the weather every year in camping tents at the UK’s Glastonbury festival, a select few stay in its glamping tents where guests enjoy the comfort of all the boutique services it offers, including a full-service spa, bar, dining room, pool with lounging deck, electricity, showers, and flushing toilets.
Other concepts provide more memorable experiences. Icehotel in northern Sweden is built afresh each winter with elaborately designed ice suites crafted by artists and even an ice chapel for wedding services. In warmer climes, Zand Hotel in the Netherlands opened two pop-up hotels made from sand – with reinforced walls – featuring the standard comforts of traditional hotels including running water and beds.
And the Welsh countryside has just got its first pop-up hotel with eight luxury cabins incorporating elements of local mythology into their design. Currently located in Snowdonia, the cabins will then move to the Llyn Peninsula for the remainder of the summer.
A new area for big brands
While the pop-up space may be in its infancy, it’s an area that big brands are open to experimenting with, says Guichardo. “If Marriott is experimenting with the concept, that could encourage other brands to consider adding pop-up hotels, too.” However, while the idea of a temporary hotel may seem straightforward, the planning, resources and financial outlay required may deter some brands.
“The expense of creating and personalising pop-up hotels, getting all the amenities that these rooms require and making sure that the rooms are up to brand standards, is very costly.” And those costs are passed to the consumer. “It may prove to be a memorable experience but at the end of the day, you’re sleeping in a tent but paying significantly more.”
Although there are experience-driven alternative hotels in urban environments, such as the rooftop boat that sits atop a London art complex, Guichardo sees the market for pop-up hotels as being mainly in remote areas, not in large cities. “I don’t see it making much sense when you have the presence of alternative accommodations as another option outside of traditional hotels” she says.
Retail pop-ups target hotels
That’s not to say that urban hotels are not embracing the pop-up trend in other ways; some hotels are including pop-up venues inside their buildings. For example, Lowes Atlanta Hotel featured a traveling bar for a month, where hotel guests could sample mixologist cocktails while sitting in a historic elevator car. London hotels such as The Goring and The Courthouse Hotel created pop-up bars based on European ski chalets during the winter months.
Retailers, who have driven the pop-up store trend, are also now joining forces with hotels. Canadian clothing retailer Kit and Ace is popping up in major city hotels across the world to offer its travel wardrobe essentials.
Pop-up hotels may reflect the growing importance of providing travellers with new and unique experiences – as well as enhancing experiences such as festivals by enabling select guests to stay close to the action while creating a sense of exclusivity. But whether pop-up hotels prove to be feasible remains to be seen.
“Some of these hotels, like Icehotel, have become bucket-list destinations for all types of travellers,” says Guichardo. “Although I don’t see some of these outside-the-box concepts taking flight, if pop-up hotels offer features guests appreciate, we could see more of them in smaller regional areas.”
HOW BOUTIQUE HOTELS ARE DELIVERING THEIR OWN BRAND OF LUXURY
Travellers searching for a luxurious hotel stay don’t have to look far in cities like New York, Chicago and San Francisco.
Hotels that include world-renowned spas and five-star restaurants are not hard to find in these primary U.S. markets – but in secondary and tertiary markets, the hunt can be a bit more challenging.
“Luxury hotels have historically been located in cities like New York and Chicago because that’s where hotel owners can charge room rates high enough to offset the hotel’s higher operating costs,” explains Lauro Ferroni, Global Head of Research at JLL’s Hotels & Hospitality Group. “Running a Ritz-Carlton or a Four Seasons in a tertiary market usually isn’t feasible from a business perspective.”
But major hotel brands such as Marriott and Hilton are still bringing luxury experiences to hotel guests in smaller cities. How? By tailoring their offerings for each market and focusing on certain amenities.
Boutique brands fit the bill
Boutique and collection brands, like Curio by Hilton or Marriott’s Autograph collection, have enabled the larger hotel companies to provide some of the luxury guests are looking for. These boutique brands aren’t bound to the same branding, design and operating guidelines as other hotels, which allows their owners to be more flexible and creative with their properties.
“Boutique hotels have the ability to customise their offerings based on the market they’re in,” says Ferroni. “Owners can make decisions that prioritise guests’ desire for upscale food, modern design or access to the outdoors.”
For example, 21c Museum Hotels boast contemporary art displays, fine dining and spacious guestrooms. With locations in cities like Bentonville, Memphis and Louisville, guests can enjoy some luxurious amenities in smaller, more accessible locations.
Luxury isn’t one-size-fits-all
There are several features that are required for a hotel to retain its luxury status. High-end design in guest rooms and common areas, spacious spas and gourmet food and beverage options are the standard, with added touches like monogrammed bathrobes or champagne upon arrival.
Lifestyle hotels are embracing luxury qualities that are important to their guests – whether it’s a swanky bar in the lobby or modern art in guestrooms. By excluding some of the more traditional luxury offerings, they’re bringing luxurious experiences at price points that work for secondary and tertiary markets.
“Though many of these hotels don’t fit the traditional luxury mould, they still provide luxurious amenities and experiences in their own unique ways,” notes Geraldine Guichardo, Americas Head of Hotels Research with JLL’s Hotels & Hospitality Group. “If a guest can enjoy dinner cooked by a prominent chef and then browse an art exhibit before bed, that experience will help them feel pampered, even if their room doesn’t have any luxury qualities or features.”
Continued growth for secondary markets
Luxury boutique hotels are popping up in non-gateway markets all over the U.S., in cities like Nashville, New Orleans and Charleston. By focusing on the luxury elements that are most important to guests and foregoing non-essentials, they’re bringing high-end experiences to new markets every day.
“We expect this trend to continue as boutique brands continue to rise in popularity, especially among younger travellers,” says Guichardo. “We expect to see many of these hotels unveil new, creative ways of delivering selected high-end experiences at more affordable prices.”
WHY HOTELS ARE GETTING ON BOARD WITH SUSTAINABLE DEVELOPMENT
For a sizeable number of today’s one billion tourists, the prospect of pristine mountain slopes, sun-drenched beaches and nature at its best is worth travelling long distances for.
Yet for all the good they do for local economies, a steady stream of tourists can also have a significant environmental impact as infrastructure springs up to accommodate their needs while increased water consumption and waste generation put pressure on local resources.
The U.S. Green Building Council (USGBC) estimates hospitality’s annual footprint to total around $4 billion in energy use, 1.2 trillion gallons of water and millions of tons of waste. The global hotel sector, comprising some 175,000 hotels, offering 16.4 million rooms worldwide and generating revenue in the region of $550 billion last year, accounts for around one per cent of global emissions, on its own.
Inevitably, these numbers support the case for sustainable development. The United Nations has even named 2017 the year of sustainable tourism.
“Sustainable development can only be achieved long-term if we manage to balance economic and social prosperity with environmental integrity,” says Franz Jenowein, Director, Global Sustainability Research, JLL.
The next step for hotels
Hospitality is a competitive marketplace and sustainability is now increasingly mainstream – partly because social responsibility and the environment are becoming more of a focus area within the corporate world.
Jenowein says: “The large chains are very much exposed to corporate peer pressure – in much the same way as companies in other key consumer sectors, such as food or cars – and that is an additional sustainability driver for players in the investible real estate market on the commercial side. Some now have specialist ‘green’ brands, or product lines, as it were.”
Strong sustainability is in the longer-term interests of hotels. As Jenowein points out, the hotel industry is linked to climate change; both as heavy consumers of energy and water, but also because their properties are often located in areas most at risk from the effects.
“More extreme weather events combined with changing climate patterns could not only influence the attractiveness of tourist destinations in the long-term but could also have more immediate impacts on buildings, natural settings and man-made infrastructure,” he says. This in turn can wreak havoc on local economies that have become reliant on predictable tourist income streams.
Siobhan O’Neill, Editor of Green Hotelier, a programme of the International Tourism Partnership (ITP), a charitable membership organisation for leading hotel groups with a combined portfolio of more than 30,000 properties, believes the push towards sustainability is very much coming from those who hold the purse strings within the hospitality industry.
“Although awareness of responsible travel is slowly growing, it’s still very low-level and most people remain oblivious to their own role,” she says. “Corporate clients are definitely influencers, because they’re having to report their own emissions and carbon footprint and demand the information from hotels; but it is investors and markets that are the strongest drivers.”
Green thinking catches on
While hotel chains from Hilton to Marriott are upping their green efforts, it’s new eco-resorts that are grabbing headlines. Hollywood star Leonardo DiCaprio is aiming to create the ‘greenest luxury development ever built’, with the first Living Building standard Restorative Island scheme at Blackadore Caye, off the coast of Belize. Whereas, over in UAE, the Oasis Eco Resort is laying claim to be the ‘world’s greenest’, in advance of its scheduled opening by ‘eco-minded entrepreneurs’ in 2020.
The business travel market is also embracing sustainability – particularly on the conventions circuit, says Dan Fenton, Executive Vice President with JLL’s Hotels & Hospitality Group.
“For meeting planners looking to recommend a hotel or venue destination, sustainability issues are increasingly going to be on the table as part of the decision-making process.”
Furthermore, they will look beyond the glossy websites. “Mere compliance is not enough,” continues Fenton. “Competing for bookings and customer spend, the hotel or venue’s approach to sustainability must be more than just the token ‘box-ticking’ of green issues. Clients want to see evidence of true commitment to the cause, ideally with a splash of creativity on top.
The policies and passion need to connect with potential customer organisations in terms of their own positions on environmental issues. Today’s customers want to go places that share their values.”
Sustainability initiatives making a difference
Food waste, for example, has become a talking point in the hospitality industry amid growing interest in redistributing surplus food from hotel restaurants and convention centres to people in need. “Red tape around food production and safety regulations has been a problem for years, keeping the volume of food redistributed unbelievably low, even when it was being gifted, not resold,” says Fenton. “Miami, though, has managed to cut through the bureaucracy. So, food waste has become a strength for communicating sustainability principles of the city’s hospitality players.”
In Chicago, The Hilton Chicago has a rooftop farm growing herbs and vegetables that employs teenagers from less fortunate local communities.
While hotel groups have different priorities on sustainability, a new wave of innovative initiatives is sending a very positive eco-marketing message. Indeed, sustainable development in the hospitality sector is a market of increasing sophistication and rising significance.
As Fenton says: “We are past the ‘please hang up your towels’ phase and have moved into trying to get people to view sustainability in a more holistic way. We want tourists and hotel guests to want to be a part of it. Nowadays, a hotel group’s eco-credentials coupled with a destination’s commitment come into play much earlier in the customer relationship, at the booking stage.
“It’s not enough to have a few low-key green features nowadays. It’s something hotels should use as a positive differentiator to stand out from their competitors.”
ALL INCLUSIVE HOTELS HAVE A NEW LOOK FOR A NEW ERA
Today’s All-Inclusive hotels still tempt vacationers with all-you-can-eat buffets and free-flowing drinks, but that’s where the similarities end with the traditional All-Inclusive model.
The All-Inclusive, or AI, vacation has been around since the 1950s when the idea of a comprehensive vacation package that included meals, lodging, and entertainment appealed to cost-conscious travellers. It’s still a popular concept today, but the business model behind that concept has evolved dramatically.
Take, for example, the food in the plentiful buffets found at many All-Inclusive resorts. Today, that food is likely to be locally sourced and sustainable while bespoke cocktails are made with top-shelf liquor. Add large guest rooms with high-end furnishings, sophisticated entertainment, activities for guests of all ages and high-end spas, and the experience is now much more in-line with modern consumer tastes.
“Back in the early days, guest rooms at All-Inclusive resorts were spartan and small,” says Clay Dickinson, Managing Director of JLL’s Hotels & Hospitality Group. “Larger guest rooms of 500 to 600 square feet are becoming the standard. There’s also been a huge improvement in the food offerings to appease guests who expect healthy choices and global flavours.”
Setting new standards
At the upper end of the market, brands have been developing a new luxury All-Inclusive format, or AI 2.0. AMResorts, for example, offers gourmet dining, elegant accommodations, premium drinks, beautiful beaches, and a world-class spa. Meanwhile, Playa Hotels and Resorts is enjoying a re-launch after teaming with Hyatt; under the names Hyatt Zilara and Hyatt Ziva, guests enjoy swim-up suites, authentic dining, and live entertainment. Wyndham Worldwide’s Viva Wyndham Resorts, Marriott International, and Hilton Worldwide have also entered the AI 2.0 arena.
AI 2.0 resorts adjust their strategy for each market instead of taking a one-size-fits-all approach. “One resort may be more health-and-wellness oriented, another may be for romantic couples, and another might cater specifically to families,” says Dickinson.
As multi-generational travel increases, it could be difficult for vacationers to choose just one type of resort. But AI 2.0 has an answer for that in the form of sister properties that allow guests to enjoy the benefits of both resorts.
“Regardless of whether you’re going to any particular resort, there may be a day or two within your vacation that you want to experience what one of the other resorts can give you. Maybe a couple will want a massage and a nice dinner, and for a little bit of an upsell, the grandparents and kids can go to a sister property’s waterpark,” says Dickinson.
Kids and teens-only clubs offering more than simple babysitting services often help add family appeal to what was once more of a singles-scene. Club Med, for example, has joined forces with Cirque de Soleil to offer younger guests circus entertainment and hands-on gymnastics training.
Before, guests may have been content to relax by the pool for a week or two, today’s holidaymakers are more keen to explore their surroundings through immersive cultural experiences or city tours. Although these are generally not included in resorts’ package prices, they offer hotels an additional income stream and even strengthen links with the local community by setting up projects through organisations such as the Sandals Foundation.
The All-Inclusive appeal for operators
Over the last few decades, a growing number of hotels – especially those in destinations with beautiful beaches or other natural attractions, convenient accessibility, and low labour costs – have switched to the All-Inclusive model. Many of these used to offer accommodation under what was known as the ‘European Plan’.
“What used to be a 50-50 or a 60-40 mix between AI and European Plan (EP) hotels 25 years ago has now become almost 100 per cent AI,” says Dickinson. “And it’s not just newly built hotels, it’s conversion of formerly EP hotels into AI. EP hotels in certain areas are having a difficult time competing with the AI format.”
But it’s not as simple as adding on food and drink. “There’s more to successful All-Inclusive operations than just operating the individual hotel as an AI,” says Dickinson. Being able to manage and control costs is key. “Usually there are a lot more upfront costs due to the number of food and beverage outlets, the expansiveness of the common areas, and the pool.”
The distribution channel is also different with an AI resort. “There are the wholesale tour operators, the charter airline, and the destination wedding company to consider, says Dickinson. Many AIs, however, control this vertical distribution channel. “Either they own part of it, or they have over years established unbelievable relationships with all the players,” he says.
Keeping guests coming back for more
Building strong relationships with guests is key. Vacation clubs are becoming an increasingly popular way to guarantee repeat visits. “Unlike timeshares, where you have to reduce the room inventory based on the number of timeshares you’ve sold, with vacation clubs, you’re selling the right to discounted travel,” says Dickinson. “This creates loyal customers for hotel operators.”
With appetite for the All-Inclusive model showing no sign of waning, Dickinson believes that the sector will grow at the higher end with more luxury hotels offering All-Inclusive packages. And with the focus on providing authentic traveller experiences, they will continue to form partnerships with associated travel brands and the local community. “Resorts will no longer isolate themselves,” he adds.
Finally, though the Caribbean coast remains a favourite with fans of the All-Inclusive models, new developments could branch out from traditional locations. “AIs will start growing in new areas, such as Hawaii and certain parts of Western Europe — even if labour is expensive,” Dickinson says.
For international travellers, the choice of where to go on their next vacation is only going to get harder.