Tourism's comeback, lifestyle trends made hotels a hot topic at 2023’s MIPIM, but concerns about debt, inflation and labor managed expectations.
This year’s MIPIM (Le Marché International des Professionnels de L’immobilier) was good news for the bars along the Croisette and the luxury yacht rental market—as well as the hospitality property sector. But downturns in construction and development combined with worries over macroeconomics and shifting demographics dampened the otherwise convivial mood.
Property investors attending this year’s conference, held March 12–15 in Cannes, got an overview of the mix of opportunities and obstacles to optimizing real estate returns across Europe. For example, presenters noted that the Office of National Statistics (ONS) in the U.K. reported that January saw the lowest level of construction work in almost a year, held back by economic uncertainty (and heavy rain). However, separate ONS figures showed gross domestic product rising 0.3%, outpacing expectations.
There is hope that inflation will fall back. Performance is stronger in the EU, where the European Central Bank (ECB) also demonstrated its commitment to achieving lower inflation by continuing to raise interest rates.
The lure of luxury hotels
But all things are not equal in development, and the chatter at MIPIM was that retail was increasingly moving online and that offices were not returning at the speed many had hoped. It appears that hybrid working is here to stay for those who are lucky enough to have the flexibility. For those visiting the office, more desirable, central locations are in vogue.
Also up for discussion were property classes that play into demographic changes resulting in demand for co-living spaces and serviced apartments. Developers and investors we talked to are confident that the hospitality sector can offer the returns that have been waning elsewhere in real estate. The exuberance of increasing demand for travel supports that confidence.
As UNWTO (United Nations World Tourism Organization) Secretary-General Zurab Pololiksahvili told ITB Berlin attendees early in March, 2023, “Tourism always comes back.” This is borne out by growth in occupancy and rates for hospitality property types. Although there’s been a broad ripple effect, this wave tourism is channeling the focus on luxury, driven by the deployment of pent-up savings but also by a growth in wealth, combining with enthusiasm for travel over (and as well as) consumer goods. As we saw in the recent round of results, the traditional hotel operators are taking their luxury portfolios very seriously and bolting on luxury brands to meet and hopefully foster demand.
How to optimize hospitality’s ROI
But as in the wider development world, all things are not equal in the hospitality world either. Luxury comes with its own special requirements, one of which is a large and motivated team, something which the sector as a whole is struggling to find. Operations can be complex and demanding. There are a number of moving parts, including F&B and events, which must come together for the offering to work perfectly and to deliver the revenue required. When it does, it creates those memorable stays which we bask in long after we leave, but that requires specialized knowledge.
...the days of buying property at a discount and
flipping it three years later are gone.”
Daniel Johansson
Leaning on a segment which is more challenging to deliver at a time when staffing is hard to come by and other costs are rising means that developers and investors are looking for a model which can deliver a high-end experience but with more limber operations than those in full-service hotels. That's driving interest in serviced apartments.
Overall, hospitality investment creates an emphasis on building relationships with a full menu of service providers. All parties must be flexible. Like guests who no longer want a cookie-cutter property, developers and owners are keen on a unique and tailored approach.
Don’t expect a bargain hunt
The outlook amongst investors at MIPIM centered on tailored expectations and changing
profiles. Debt is more expensive than it has been for a long time. Wherever you are in the hospitality, there is a dawning realization that the days of buying property at a discount and
flipping it three years later are gone. Thankfully, we have not suffered the levels of distress which were feared at the beginning of the pandemic, but the cheap property which formed the basis of many investment models is not available.
What we are seeing as we travel the world, building our pipeline, is a more discerning approach. There is no longer the belief that if you build it, they will come. Location and product are now of paramount importance, as is a proven track record. There is some new development but swiveling attention away from office and retail means conversions are also growing.
The most important mindset to have is not one where your targets are paramount. Growth for its own sake has no merit. A property can only succeed when all parties have shared goals—not just raising a flag.
Daniel Johansson is director of development and acquisitions at Cheval Collection. Previously, he served as development director at Campbell Gray Hotels.
The views and opinions expressed in this column do not necessarily reflect the opinions of Hotel Investment Today or Northstar Travel Group and its affiliated companies.