The Hotel Investment Conference Europe (Hot.E) has witnessed its fair share of change since debuting in London in 2011. For the first couple of years, the market was still reeling from the aftershocks of the global financial crisis, with conversation dominated by uncertainty in capital markets, the future of distressed assets, the possibility of a Greek withdrawal from the euro and, by extension, the future of the entire European project.

By 2013, the mood had changed. European transaction levels were at their highest level since 2007, liquidity was returning to the market and optimism permeated the entire conference. This sense of positivity continued across the next few years. The UK, in particular, was booming, with London topping a 2015 conference poll as Europe’s most attractive investment market.

The tone at 2016’s event was quite different again. The pound’s standing against the dollar was suddenly lower than at any point since the mid-1980s. Stuart Bailey, CEO of Splendid Hospitality Group, chastised some commentators for trying to “talk the country into a recession” and, despite there still being plenty of talk surrounding opportunities and positive metrics, a new six-letter word was on everybody’s lips and permeated proceedings throughout: ‘Brexit’.

Uncertain times

Brexit has certainly remained a concern, with uncertainty still surrounding what form the UK’s departure from the EU will take and events of the past few years – from the referendum result to the election of President Trump – meaning few people are willing to predict anything confidently. The one constant during that time, however, has been the continued success of the European hotel market. In fact, performance levels have been so good that, by the 2018 event, some delegates were beginning to ask where exactly in the cycle we sat and how much longer the levels might last. It was predicted that 2019 might be the year boom times came to an end.

The overall mood was not helped by the fact that the first morning of the conference coincided with the news that Thomas Cook Group would be going into compulsory liquidation. A name in hospitality that could date its history back to the mid-1800s, this was a seismic – though not unexpected – blow to the travel market and was referred back to repeatedly across the two-day event.

“We had a headline earlier this year – ‘Welcome to the downturn’ – and I think that is going to be reflected in the numbers you see shared today,” said event co-chair Andrew Sangster, editorial director of Hotel Analyst. “Thomas Cook can’t be ignored, but that’s not entirely due to a downturn. Digital disruption had a huge part to play; they didn’t adapt quickly enough.”

From OYO to Expedia to Google, a number of those digital disrupters were in attendance and speaking from the stage this year, but for a macro take on what was happening across the hotel market, there are few better places to turn than STR managing director Robin Rossmann. “It isn’t a case of ‘welcome to the downturn’ quite yet,” Rossmann stressed, “but we are certainly not seeing the same level of confidence as witnessed over the past few years. Supply growth is the highest on record, occupancy has stalled and ADR is trending down. Decline in group travel is a key driver of weak demand.”

In the UK, forecasts were ‘very rough’ for the provinces, while London looked more stable; Germany: ‘Not spectacular, but solid’; Russia had more of a positive spin, having seen an inevitable World Cup hangover, but managing to build on that momentum nevertheless; Benelux was a tale of two cities: “Brussels wants tourists; Amsterdam doesn’t”; and the Mediterranean was struggling as tourists returned to North Africa and Turkey.

“The truth is, 2010–18 was a phenomenal decade for Europe, but 2019 marks a turning point,” Rossmann concluded. “The picture looks quite different.”

Pressure of sustainability

Another major shift at this year’s event was operators and developers grappling with the issue of sustainability and environmental responsibility as far more of a core business risk than it has ever been before. Like Thomas Cook, the news cycle was helping to drive this as a topic of discussion – Greta Thunberg was addressing the UN on the same day – but there did seem to be a genuine belief that the industry needed to fundamentally rethink attitudes and reflect fast-shifting public opinion, if it was to flourish in this new paradigm.

In his talk on the future of hospitality, travel and tourism, Fast Future CEO Rohit Talwar stressed that “impactful energy and environmental solutions” were a key challenge all operators must be setting themselves. “Sustainability is becoming a core driver, but I do not see many people putting their hands up and saying, ‘yup, I am going to do that’,” Talwar said.

Cody Bradshaw, managing director and head of international hotels at Starwood Capital Group, agreed that business as usual was no longer an option. “[Sustainability] is where hotels will differentiate themselves, because until now they did so only with their brands,” said Bradshaw during a panel discussion on the outlook for Europe. “It will be hugely exciting over the next 10 years and this will be a challenge for the big hotel brands.”

“It has to be top of the mind for customers, staff and owners,” agreed Karin Sheppard, IHG’s managing director for Europe, another panel participant. “Corporate contracting is also forcing change. We have taken steps in the past year, like the move to bulk toiletries, where some people had concern about how it would play, particularly among luxury guests. They were the first to applaud.”

On the subject of luxury, Sheppard was also keen to stress the importance of IHG’s 2019 acquisition of Six Senses and the benefits it could have for the brand as a whole. “We’ve had a significant amount of positive feedback,” Sheppard said. “It extends what we already have in the luxury space, a fascinating business, with a good pipeline and incredibly strong brand. There are lessons that can be taken, especially in the wellness space and invested elsewhere in the company.”

A theme of opportunity

While the panellists acknowledged that there was a fundamental mood shift in the sector, all still saw opportunity. Sheppard stressed the importance of leveraging the strengths of one’s partnerships during times of uncertainty, while Bradshaw said that, from an investment point of view, “sometimes I’m hoping for a bit of volatility to come,” citing possible opportunities in Turkey. Meanwhile, Gaël Le Lay, deputy CEO of CONVIVO, who acquired 13 properties from Bradshaw’s Starwood Capital in 2018 – the French investor’s first foray into the UK hotel market – and appointed Sheppard’s IHG to manage them, was bullish. “I have not seen opportunity like I’m seeing in London right now,” Le Lay claimed. “From chaos comes opportunity.”

Opportunity was very much the theme of the first afternoon, with delegates breaking into smaller groups to attend regional panels on Scandinavia, Eastern Europe, the eastern Mediterranean and the Black Sea, as well as sessions on private equity and debt. Sitting on the Scandinavian panel, Zleep CEO Peter Haaber, who recently sold a controlling stake in the company to Deutsche Hospitality, discussed the genesis of the brand. “I originally wanted to be a franchisee, but all the big boys offered terrible terms,” he said. “I figured I had to do it myself, so I stole ideas from everyone, tweaked what I thought would work in the market, had a few ideas of my own and did something new.”

The second day featured a series of short discussions with other players in the market looking to break from the status quo, including Christopher Michau of Expedia, Google senior industry head Finnbar Cornwall and Kevin May, the editor-in-chief of PhocusWire.

May was also responsible for interviewing Michau and was keen to discuss the recent deal Expedia inked with Marriott International, an industry first that sees the platform become the exclusive distributor of the operator’s wholesale and promotional room rates. “It is a very good example of the way in which our relationships with the operators has evolved,” said Expedia’s VP for platform services. “Four or five years ago, we started talking to Marriott, asking, ‘What can we do for you?’ It was the platform that we create that was very attractive to Marriott and I think they saw that they themselves were losing a little control over their own pricing.”

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Properties acquired by CONVIVO from Starwood Capital in 2018.
CONVIVO

Michau believed that Expedia’s sole focus in the travel industry put it at an advantage over the big players like Google, which are increasingly looking at the market, but acknowledged that the sector was “incredibly competitive”. On the flip side, Cornwall stressed the ability of Google to leverage its size – and deep pockets – when looking to disrupt an industry, as well as a willingness and flexibility to rethink a strategy if an idea was not working. “We start, we stop, we learn and we move on,” said Cornwall.

Following lunch, delegates were encouraged to temporarily look back rather than forward, as award recipients were announced for Transaction of the Year, Merger and Acquisition/Portfolio of the Year, and The Hot.E Hall of Fame Award, won by Henderson Park’s acquisition of The Westin Paris Vendôme, NH Hotel Group’s acquisition by Minor International and Anders Nissen, CEO of Pandox respectively.

Topic of change

The final afternoon closed with the panel ‘Expert views from the International Hotel Investment Council’, featuring eight industry leaders taking to the stage. The wide-ranging conversation incorporated topics that included the changing structure of deals, emerging distribution trends, the evolving demands of various geographies and what any downturn might actually look like.

“Some consumers are pushing against brands,” argued Scott Woroch of Kadenwood Partners. “If you take IHG, it is almost as though it is keeping Kimpton and Six Senses a secret. I think we are at a weird inflection point now.”

One market that still seems to see value in brands is China, though there was some debate surrounding how transformational the emergence of outgoing Chinese tourism would be for European operators. “The majority of the Chinese middle class earns less than $15,000,” argued Paul Slattery of Otus & Co. “They have no money to travel. Chinese travel outside of China is government subsidised. Take as much of their money as you can; it isn’t theirs.”

“The industry remains a little abusive of Chinese travellers,” Woroch countered. “They are becoming more sophisticated and will make a lot of hoteliers very rich.”

Such confidence was not always on show at this year’s event, and it will be interesting to see how operators and investors manage attitudes and revise strategy as the nature of this downturn takes shape and looms ever closer into view.

Right now, the mood at next year’s 10th iteration of Hot.E, like so much of what has happened in Europe over its first decade, looks impossible to call.