18th Oct 2018

Innovate to Elevate: The Future of the Hotel Sector

Increasing life expectancy, artificial intelligence, population growth, climate change and the economy: just some of the big topics discussed at this year’s Annual Hotel Conference (AHC) held in Manchester, now in its 15th year.

With its theme of 'Innovate to Elevate', AHC attracted 900+ delegates this year including hoteliers, owners, operators and managers as well as investors, developers, designers, architects, and consultants. Plus there was a host of world class speakers and industry leaders onboard to share their insights.

A rollercoaster ride

Leo Johnson of PwC and co-presenter on Radio 4’s FutureProofing programme kicked off the event with the prediction that: “We will be riding a rollercoaster over the next 20 years.”

So what changes are we going to see in the hotel sector in the coming years that will have us hanging on to our hats?

Technology, artificial intelligence (AI) and the new transport ecosystem will have a major impact, with an estimated 47% of white collar jobs lost as a result of automation. But – according to Johnson – the future for the hotel industry is not necessarily around technology. It’s true that hotels will use it as a differentiator. But if we over-rely on technology we will be missing the bigger picture, says Johnson. Technology should be used to enhance rather than take over the customer service experience.

State of the nation

A session led by Dr Rebecca Harding, CEO of TradeTech Company Coriolis Technologies, gave an economic overview of the UK and the micro and macro trends that are likely to impact the UK hotel industry. In a nutshell: some good, some bad and in the short term a great deal of uncertainty.

So the challenges:  

  • Currently GDP is pretty flat
  • The biggest risk at the moment is that uncertainty remains as uncertainty
  • Prices are rising but wages are not
  • And to add to the political uncertainty there is a perception of potential terror threats which affects tourism
  • Unsecured personal borrowing continues to rise and could hugely impact the economy in the next 5 years.

The good news: 

  • In the UK and US approximately 20% of people’s income is leisure related and an average of 9% is spent on hotels
  • 63% of businesses in this sector expect to grow
  • UK travel exports are currently strong
  • There are 190,000 new rooms in the pipeline, which is a 30% increase on the existing room supply pipeline
  • A great deal of evidence suggests that businesses in this sector are just “getting on with it”.

Who’s coming up with the money?

A lively panel session on hotel development and construction talked about how projects are currently procured and financed within the sector.

In terms of development, there are very few hotel operators that involve themselves in the construction and refurbishment process and barely any that take any level of risk for this. Developers are generally trying to pass this risk on to investors, who ultimately carry the responsibility for any financial overspend or shortfall in their return on investment.

Currently, many investors are finding difficulty in funding projects in a sector where construction costs (inflation) are extremely high and future profitability of hotels is uncertain. Notwithstanding this, there was a strong presence from the banking institutions at the conference and several were quick to point out that there is a great deal of liquidity available in the market right now and they are all very much open for business.

Modular as the way forward?

Modular building is still a hot topic with some businesses saying it’s a way to offer the most sustainable, efficient and adaptable product. But while it’s acknowledged that modular construction is quicker and cheaper, it still hasn’t really taken off.

It seems developers are generally reluctant to consider it as an option because there’s a lack of willingness by end users to offer large scale capital to forward fund the manufacture of units and thereby obtain any true economy of scale.

By Lewis Hodgkinson

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