Questex · 8 March 2018
Gumas introduced Megan Greene, Managing Director and Chief Economist at Manulife Asset Management to provide the economic outlook. Greene opened with the view that "secular stagnation is here to stay", with "low growth and low inflations" being prominent contributing factors. She identified the differences between hard and soft data. The soft data indicators showed that businesses and consumers are feeling good in the US with manufacturing confidence at post crisis highs. However, Greene noted that "in 2017, every asset class was up - that's a warning sign. It shouldn't be like that." Looking at the hard data, the economic data, the picture was different, and globally, we are all suffering from over supply. Over supply of debt, over supply of regulation and, critically, over supply of work force. She noted that 2 billion people have been added to the workforce in 10 years. Persistently low productivity in the developed world is also a negative factor and Greene noted that although "AI may help productivity growth, I don't see any major growth in productivity coming down the line." Looking at debt levels, she noted, "every major economy has an increasing debt burden" and that "debt has only gone up since 2008." Greene admitted her current 5-year economic forecast for the US didn't currently include a recession but "that's not to say there won't be one." She also noted that business cycles are much longer than we have ever seen previously as central banks keep stepping in to support and rescue businesses in distress and that affects the natural cycle. Turning to Europe and the recent elections in Italy which would certainly result in a hung Parliament and France where people remain optimistic post Macron's election victory but he now faces backlash from French people as he tries to push through difficult reforms. This may mean he can't get to his European reforms which are on his agenda. On Brexit, Greene says it will be worse for the UK than the EU. Looking further afield to China, Greene notes the high risk here as public and private debt is well over 250% of GDP which she says is "dangerously high."Robin Rossman, Managing Director at STR presented the Global Investment Outlook 2018 and noted that occupancies now are almost 10% higher than they were in the previous peak during 2008 and "during 2018 we expect to see another year of 5%+ RevPAR growth across Europe." Turning to Asia and the Middle East, Rossman forecast another strong year with significant supply growth to continue in the Middle East and over 100,000 due to open before 2020 as Dubai maintains its position as the fourth most visited city in the world in the world. The year following the Brexit referendum saw a big boost in demand as the pound became cheaper allowing hoteliers to boost their rates. Occupancies have now turned negative with rate beginning to decline. Rossman said that "2018 will be challenging for London with 0-2% RevPAR growth." Looking at markets that had been affected by terror attacks, Barcelona, London, Berlin and Manchester saw no decline in RevPAR following with the only market that still hasn't recovered being Paris. The outlook for the Mediterranean was strong with city locations seeing a 40-50% RevPAR increase over last 4 years and resorts showing 50-60% growth.The IHIF 2018 Lifetime Achievement Award was then presented to Adrian Zecha, who was interviewed by Liv Gussing Burgess, Managing Director, Kuxury Hotel Consulting. When asked how he decided on new locations for his properties he said he has a "gut feel for new locations" and looks at factors including the natural surrounding and whether the place was as yet, undiscovered.Investors' intentions in 2018 and beyond was moderated by Keith Lindsay, Managing Director, EMEA, CBRE Hotels who opened the session by stating: "there is a wall of money looking at the hotel sector at the moment" and noted that "2017 was a bout of frenzy and with all the capital formation happening at the moment, 2018 is likely to see more of that." The CBRE Hotels investor sentiment survey claimed that 37% of investors are looking for capital growth in 2018, against 24% in 2017.During the session, Desmond Taljaard, Managing Director - Hotels, London & Regional said: "we're still trying to grow the Atlas business organically in the UK. People seem desperate to focus on the high labour aspect of the UK. Limited service still works and luxury is a good opportunity, despite the higher staff costs. I don't get the bit about the stuff in the middle."Coley Brenan, Partner, Head of Europe, KSL Capital Partners, said: "when we look across multiple cycles and look at consumer habits the UK remains super attractive. If you are here for the long run in resorts, you will see meaningful opportunities to exit in the next four to 10 years. If you looked 10 years ago hotels weren't core and now they are, so you can see that extending into resorts. It takes an institutional investor to show people why these are institutional classes." He added: "there are cloud on the horizon, a lot of industries will be impacted, ours included but I remain positive.Martin Bruhl, CIO and Member of the Management Board, Union Investment said: "What keeps us up and night is things like climate change. Do you not worry about sea levels rising? We've been successful building up a portfolio in Germany and in the US where we do operational leases. There is a lot of cap rate compression going on - we've tried to be ahead of the herd in development funding. There are so many operators that want to be asset light and there are certain regulatory restraints on both side which make it complex."Abhishek Agarwal, Managing Director, Real Estate, Blackstone, said: "we've made some investment in the resort sector, there seems to be an imbalance between the demand and supply side. To take an example of Spain, last year it saw 82 million international overnight visitors, it was the second most visited country globally behind France. That's huge. That's good for leisure business. If you look at European airline capacity and their order books - if you see where they're allocating in the future, Spain is growing by about 11%. If you look at secular demand drivers like people preferring experiences rather than goods, that's all driving demand. But if you look at supply, there is little. There is limited coastline in which to grow. The sector has not been invested as much as other areas have been. You have an opportunity to get the yield investing in underinvested businesses."The owners' view: increasing profitability was moderated by Jonathan Langston, Managing Director, HotStats in conversation with Cody Bradshaw, Managing Director, Head of European Hotels, Starwood Capital Group; Neil Kirk, Principal, Henderson Park; Anders Nissen, CEO, Pandox AB and John Ozinga, CEO AccorInvest. Nissen said, on OTAs: "now we have hundreds of distribution channels and just a few are held by brands. To get value you need to understand the OTAs and your own brand and the competitor set, and your local management and you need to work with all of that. We have a positive view of OTAs - they cost too much, but they create a lot of demand and they have introduced technology which we as an industry have not done ourselves. There may be so many more channels that the commission may come down and to call the OTAs the enemy is not right. They can deliver a revenue premium, but you have to work with channel managers, which is an expertise that the sector does not have. Kirk also noted the complexity with distribution channels and also said: "we need to work with the operators, the brand managers. We need to align ourselves with them, they have worked for a number of years with the same model - we can't just beat them up." Bradshaw said: "we're all students in this game and we're constantly learning, and part of our job is to facilitate the learning of best practice. There is a spectrum of asset management - on the one hand operators monitoring and the other is real in the trenches operations. Asset management is like peeling back an onion and you can go back a few layers and think you're gone quite deep or you can go even further back. You have to have your hands on it but do it in a collaborate way."Day 2The second day of IHIF 2018 opened with Andre Witshi, President of the Board of Governors at Ecole hoteliere de Lausanne thanking IHIF for their continued support and noting 2018 marked 125 years since the school was founded in 1893. Witshi highlighted several areas of development for the school including a Village of Innovation which will open later this year and a Singapore Campus due to open in 2020.Russell Kett, Chairman, HVS - London Office then interviewed Federico J Gonzalez, President & CEO, Radisson Hotel Group and conversation inevitable centred around the announcement, during IHIF 2018, that the group were rebranding to the Radisson Hotel Group and setting out an ambitions 5-year plan. Kett asked whether the goals were achievable and measurable? Gonzalez replied that is was "not the number of rooms, but how you are recognised in the industry" and firmly believes that Radisson "have the conviction to deliver on these goals whilst creating memorable moments."The first panel session of the second day focussed on development trends and was moderated by Philip Ward, CEO Hotels and Hospitality Group EMEA, JLL. Joining the panel were David Etmenan CEO, Novum Hospitality, Raul Gonzalez, CEO, Barcelo, Thomas Magnuson, CEO and Co-Founder, Magnuson Worldwide, Pierre-Frederic Roulot, Chairman and CEO, Louvre Hotels Group and Michelle Woodley, President, Preferred Hotels & Resorts. Each speaker outlined their hottest development markets and gave the reasons why.Ward opened by highlighting that more than 50% of the 2.3million global pipeline is with the big four. Magnuson said: "we function best when there's times of struggle, because we help owners put cash back into their operation. There are some icebergs in the water like Brexit, Airbnb - and both vastly underestimated. We want to help the independent hotelier fight against the rise of the OTAs and the rise of the brands. In the UK and the US, we don't compete with the Hiltons or the Marriotts, we started at the grass roots, in the small towns. When you get outside the big cities that's the vast middle, where you get 80% of the hotel stock. We are excelling as a conversion brand. Magnuson believes there will be a place for the likes of the Hiltons and the Marriotts in 10 years' time, but it's going to be very different. It will not be the kind of top-down environment that started in the 1950s. It's going to get a lot more fragmented." Ward concluded the session by saying: "it's not a question of the hottest markets, it's the one that's are struggling the most."The IHIF and ISHC Young Leader award was introduced by John Fareed, Managing Director of Horwarth and Chairman of ISHC who reminded us that the award was created to recognise exceptional talent and celebrate excellence in the hospitality industry. The winner of the award, Tina Yu, Senior Vice President at KSL Capital Partners accepted the award and said she was "grateful for vote of confidence and to her colleagues who empower her". She said she was extremely excited to continue her career in this exciting industry.The final plenary session of the second day was the global CEO panel moderated by Andreas Scriven, Head of Hospitality & Leisure, Deloitte in conversation with Geoff Ballotti, President and CEO, Wyndham Hotel Group; Keith Barr, CEO, IHG; Sebastien Bazin, Chairman and CEO, AccorHotels, Chris Nassetta, President and CEO, Hilton and Patrick Pacious, President and CEO, Choice Hotels International.Nassetta opened with comment on the success of their recently launched Tru brand saying: "Tru is like a rocket, we have 20 open, with 50 scheduled to open next year and 100 more in 2020. The purpose of having multiple brands is to be able to serve any customer, wherever they are, with any need they have."Bazin said that Accor have 24 brands, half they bought and half they created. He also said that "four years ago when I was here I thought that brands could matter less, but I was wrong. Brands are like a group of friends, for every occasion you can count on them for a different purpose and that's what clients want. They provide a short cut in a very crowded world and have enormous value".When the panel were asked how sustainable brand growth is, Pacious suggested that "brands need to evolve and you need to take care of brand equity. There is a way to take your brand and make it relevant." Barr announced that IHG would be launching a conversion brand later this year and announcing the acquisition of luxury brand to sit above InterContinental very soon.Bazin noted that: "the problem with our industry is that we see our customers 3 or 4 times a year. Facebook interacts with customers 12 times a day, Amazon 4 times a week and we need to increase the amount of times we interact with our customers. However, Facebook, Amazon and others are missing the last mile as they never meet the customer. We do. They will never do it as it is capital intensive." Bazin said that he wanted AccorHotels to be at the top of consumers minds for anything service related.Barr feels "the industry is better at branding today than it was 10 years ago and uses owners in advisory role when creating brands. Companies that succeed the best, really engage with their owners and are always learning and focussing."Pacious was asked how Choice Hotels are leveraging technology and said that they had been a technology company for 30 year and "10 years ago they built a PMS system in the Cloud (which provided spectacular cost savings and time efficiencies) and had recently built their reservation system in the Cloud as well." HeBazin concluded by reminding us that AccorHotels have an innovation lab comprising around 30 people, 25 years old on average, and identified mobility as the next big challenge on the hospitality horizon, both in terms of bringing the hotel to the customer, rather than getting them to come to you and also facilitating mobile payments within the industry.