How hotel investors can plan ahead of a potential recession

As we enter the next decade, myriad hotel investors are laying nocturnal due to the concern of when our next recession will occur. Having faced strong growth in the hospitality sector last decade, and with the burden of worry arising from recent trade wars and monetary policy changes, the industry could quite well be alluding to a slowdown.

John Chang, SVP of Marcus & Millichap Research, presented hospitality industry data to illustrate this matter further at the Marcus & Millichap Kabani Hotel Group 4th Annual Hotel Investment Forum, hosted October 2019 in Miami, FL.

“Recessions are tough on the hotel business, and our industry growth cycle is at record duration,” according to Chang. Thus, hotel investor skepticism regarding the future of the hospitality economy comes to little surprise.

According to the 2018 Marcus & Millichap Hospitality Investment Forecast, the U.S hospitality sector has seen 10 years of growth since 2009, with a job market larger than the entire labor force of Canada, 1.3 billion guests in 2018, and GDP growth of $6.7 trillion. The economy has had the longest continuous growth period of job creation thus far. New jobs have been created every month for more than seven consecutive years, maintaining unemployment close to 4%.

Nonetheless, hotel ADR and RevPAR growth trends are commencing to slow down, which could imply a stabilization in the hotel economy. In a survey conducted by Marcus & Millichap Research Services, it was concluded that hotel investors expect stabilized hotel property values soon, indicating a level of support for this notion of market stabilization.

Preparing for the future
How do we brace for the potential impact of an economy downcycle or, even worse, a recession? Research conducted by Ideas, Revinate, SiteMinder and Dr. Peter O’Connor suggests that in the dynamic hospitality industry, hotels need to renovate their strategies to meet new criteria arising from the actions of travelers.1

In this new decade, it is of utmost importance for hoteliers to capitalize on the ever-growing availability and affordability of technology. In the latter half of the last decade, there have been plentiful inventions allowing for more efficient hotel operations and greater guest experiences.

Hotels should implement these technologies primarily on two bases: exceeding guest expectations and improving hotel performance.

Guest expectations
Most guests check in to hotels to unwind from their busy day-to-day, while enjoying exceptional experiences. The premium that guests pay for lodging at a hotel stems from the expectation of being taken care of. Convenience is key in the hotel industry. If the last decade has taught us anything regarding convenience, it is that smartphone integration plays a vital role in the matter. Hotels should use appropriate technologies to streamline their check-in and checkout processes, allowing guests to integrate into the hotel using their phones and self-automated kiosks. These kiosks have done wonders for restaurants, as they reduce lead times and allow for greater customer satisfaction.2 During busier times, employees tend to focus on helping more customers, while neglecting to offer certain upgrade packages to increase revenue. With kiosks, hoteliers may rest assured that each guest is offered upgrade opportunities through a nonintrusive message on the screen. In addition, guests may scroll through all packages offered by the hotel at their leisure. This has two chief benefits: Waiting time is reduced from having an employee verbally describe the options to the guest, and fewer resources are spent on training employees to memorize details and “sell” the various packages.

Improving operations
New technologies have greatly simplified and automated tedious processes of hotel operations. Revenue management software solutions may help hoteliers forecast trends and anticipate changes to allow for effective revenue optimization. Yet, only 10% of hotels utilize some form of revenue management software, due to the intricacy of the process that is revenue management.3

This presents an opportunity for the diligent hotelier. As 90% of hotels shy away from revenue management technologies due to complexity, the implementation of such solutions could sharply increase profits and thus allow a hotel to shine in its competitive environment.

Similarly, customer relations management software are tools of vital importance to hotels, as tracking guest behavior and preferences allows them to tailor their services more closely to their target demographics. In 2017, CRM technology spending placed in the largest spending category in enterprise software, as concluded by Gartner. A proper CRM tool centralizes the storing of guest information, identification of sales opportunities and management of marketing campaigns in one location.4 With the data collected, hotels may effectively tailor to the overall guest expectations and experiences in the hotel, especially for repeat customers. In addition, this leads to hotels having a greater understanding of who their customers are and what they seek, facilitating the development of efficient marketing strategies.

The abundance of useful hospitality technology comes with a price. As more hotel brands are implementing the same solutions, it becomes harder for a single brand or hotel to “keep up” and stand out. The uncertainty of the market should serve as motivation for hotels to conduct research and adopt newer solutions ahead of their competitors. It follows that in 2020 and onward, innovation is major to the hotel industry player.

On a final note, Chang suggests following reactions in confidence levels impacted by the recent yield curve “un-inversion” to assess risk to the hospitality sector. The smart hospitality player will see this new time period as an opportunity for innovation, while exercising utmost caution and maintaining adequate reserves to prepare for a potential recession.

Ahmed Kabani is the first VP investments – senior director and a member of the National Hospitality Group in the Marcus & Millichap Miami Office. In his 11 years working in the industry, Kabani has commanded relationships with an investment pool of more than 1,000 hotel owners, investors, REITs and private equity groups. 

Let us know what you think… To comment on this opinion piece, or to voice your own opinion about pertinent industry topics, please email Editor-in-Chief Christina Trauthwein at [email protected] We’d love to hear from you and share your point of view.

1 siteminder.com/r/trends-advice/hotel-insights/hotel-industry-2020-predicting-future-difficult/
2 hospitalitytech.com/4-ways-self-order-kiosks-grow-restaurant-revenue
3 skift.com/2017/02/14/hotel-revenue-managers-cornell-2017-survey/
4 hoteltechreport.com/news/hotel-crm

Sources:
hospitalitytech.com/4-ways-self-order-kiosks-grow-restaurant-revenue/
hoteltechreport.com/news/hotel-crm/
skift.com/2017/02/14/hotel-revenue-managers-cornell-2017-survey/
Marcus & Millichap Research Services, BEA, BLS, U.S. Census Bureau, Federal Reserve, STR, Inc

 


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