Hospitality Industry Trends and 2023 Outlook, with Jeff Weinstein

Episode Transcript

Jeff: There are others out there that even it’s kind of co work and co live. There’s a brand out of Singapore that’s growing and it’s co work and co live and they recognise changing dynamics, especially amongst the next generation that’s starting to travel and then how they look at travel differently and what they’re looking for out of that experience. And they’re not necessarily working out of an office, they are the digital nomads.

Robin: Welcome to the Innovative Hotelier podcast by Hotels magazine with weekly thought provoking discussions with the world’s leading hotel and hospitality innovators. Welcome to the Innovative Hotelier Podcast brought to you by Hotels Magazine. I’m your host, Robin Trimingham, and my guest today is Jeff Weinstein, editor in chief of Hotels magazine. Today, we’re discussing hospitality industry trends and outlook for 2023.

Robin: For the last 15 years, Groupe GM has been a leader in the luxury cosmetic amenities industry. The group proposes a 360 solution for manufacturing to distribution, with over 40 international brands in its worldwide distribution network, Groupe GM offers different shapes and sizes of eco friendly products in hotels all over the world. Discover more on www.GroupeGM.com That’s GroupeGM.com

Robin: Welcome, Jeff.

Jeff: Hi, Robin. Nice to see you again.

Robin: It’s great to chat with you as well. This has been quite a year. I was thinking back in preparation for our conversation today at the end of 2021. And though, I’m going to say a major part of 2022, everywhere we went, we heard lots about leveraging the experience economy in the hotel industry. So I was thinking, who better to chat with about emerging trends in 2023? To start us off here. What economic factors would you say have dominated the hospitality landscape as a whole this year?

Jeff: Well, that’s a huge kettle of fish. Well, it’s not a direct economic factor, but certainly COVID has impacted the global economy. And not surprisingly, once again, the industry has rebounded better than people expected. And I’m not surprised because after 9/11, after Lehman in 2008, this industry tends to roar back and it has again. Travel seems to become a birthright for everybody, and it’s seems to be everybody’s desire to get out and see the world. It’s just the way of the world these days. So despite economic calamity that was caused by COVID, this business came roaring back. And of course it was led by leisure. And now leisure seems to be flattening out, especially as we head into the fall, which is not all that surprising. But the good news is that most of the public companies at least are reporting business travel picking up and more importantly, group picking up, which begs the second half of this conversation about the state of the global economy heading into the coming year, despite the potential concerns about recession. As we just heard the CEOs say during third quarter earnings, they’re still bullish. They think even with an economic slowdown, assuming it’s nothing overwhelming that they think next year is going to be pretty good, people will still get out for their vacations. And I think the strength of next year will be determined by business, travel, business, transient and group. And as long as the economy hangs in there, maybe as a mild recession, I think it’s going to be a decent year. So I don’t have a crystal ball and I don’t think anybody does. So conversations forecasting the way forward for performance are amusing, but nothing that you can really hang your hat on. But that’s what the tea leaves are telling me at the moment is that barring something catastrophic, next year is going to be good.

Robin: Yeah, I would tend to agree with you. I noticed an awful lot more industry events making their way back onto the calendar and if the industry people are finally ready to meet face to face, I think it’s a good sign that the whole sector is picking up. But interestingly enough, at the same time that we’re hearing about all this, when you look at what’s going on at major airports, they’re forecasting huge delays and shortages of staff. And it’s hard to separate the wheat from the chaff and not talk about travel or hotels in the same sentence. What would you say in the hotel industry regarding labor shortages or the cost of retaining employees? How much is that going to be a factor, do you think, going into 2023?

Jeff: It’s the biggest factor. That’s what the minute I get on the phone with any executive. That’s their lament. Business is coming back, but they can’t find the staff. And you talk about airports and think about what travel is like these days and how you arrive at a hotel just beat up and you want to have that hotel welcome you and help you recover from your journey. And if they don’t have the team that’s trained, that’s welcoming, that belongs where they’re at, it’s going to create a lot less loyalty. Loyalty is going to become less important if the hotels can’t deliver. And anecdotally, again, even at the luxury levels where the prices are astronomical these days, these service levels are not meeting the expectation of the guest. So being really creative to hire the right people, of course pay enough, and naturally treat your staff better than they’ve traditionally been treated. That’s the way forward. And our people are waking. Hoteliers are waking up to that and they’re starting to provide more flexibility, better benefits, certainly more pay, and they’re being more humane to their teams. It’s a double edged sword. If we go into a deeper recession and there’s more unemployment, it’s actually going to be good for the hotel business because there’ll be more people looking for work. When as it stands right now, was a challenge and will remain one until either times change or hoteliers wise up and start treating their people better.

Robin: Yeah, I think you’re making an excellent point. And one of the interesting things to watch will be to see whether this shift in loyalty will give some brands or some boutique properties a fighting chance. Who wouldn’t really have had the opportunity to secure business travel and quantity before.

Robin: Let’s change the subject a little bit here. There’s been a huge emphasis lately on expanding wellness amenities as being the be all and end all way to lure the luxury brand sector. What do you think? Has this opportunity been saturated or are we going to see it persist in the coming year?

Jeff: It’ll persist. I wouldn’t call it the be all end all because certain hotels just aren’t cut out to be spa driven or wellness driven. And that’s not their mission. That said, considering what the world has been through the last few years, people are looking to be pampered, be it in the spa, be it at the breakfast table with something healthier, or be it with that experiential piece that makes their stay not so much about wellness, but about feeling good about themselves. Just having had that experience, it’s like, Wow, I feel better. I’m leaving this hotel a little bit rejuvenated, a feeling a little bit better about the world, a little bit better about life. So in some cases, maybe it’s the experiential piece that plays a bit of a wellness role. But certainly wellness is going to only continue to grow in importance as part of a travel experience. A lot of hotels and the resorts base, of course, it’s become part of their DNA and will continue to be so. But it’s a lot more than just having enough massage rooms or treatment rooms. It’s much bigger than that. It’s much more about the meditation piece and all that emotional wellbeing that people are looking for. It’s not always about spa treatments.

Robin: I think you make a great point in the opportunity for properties to help people just feel a little better about themselves, about feeling more human, if you will, which is sort of a segway into my next question. There’s been a lot of talk about transforming spaces or amenities to attract the leisure customer, who I actually think is here to stay myself. How do you anticipate this new guest category impacting hotel design or room rates as we go forward?

Jeff: Yeah, I agree with you, Robin. I think it is here to stay, just like the flexible work space is here to stay, that it’s no longer necessarily 9 to 5 in the office Monday through Friday. And yes, people have recognized the importance of family time. I think we all learned a lot of lessons last few years and hotels are absolutely already responding to that with design, either new hotels or being built with more suites, that connecting rooms, whatever it may be, that may have a living room in the middle. It was two years ago maybe that Marriott launched a prototype for its element brand. I believe that the corners of every floor were these suites built for groups, either families, business travelers that aren’t having those regular meetings in the office. Maybe they’re meeting at a hotel once a quarter and having that kind of space where they have private space, not necessarily a meeting room, but more informal private space. Those are being recognized by developers and they’re building product that will match that demand. And I think you’re going to see more of it. Certainly the whole extended stay piece kind of dovetails there. That people are, the leisure travel wants to have that extended stay experience because it can be really expensive to stay in a hotel for an extended period of time. And the extended stay option provides that a similar experience, usually at a much more reasonable cost and much more family oriented. So yeah, those are trends that are definitely going to expand, no doubt.

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Robin: You brought up connecting rooms. It’s interesting to see how things have come full circle within that regard. I know, for example, one of the iconic railway hotels in the Canadian Rockies was built around the original thought regarding connecting rooms and sort of went like this. There would be a room for madam, then a room for madam’s luggage, then a room for madam’s maid. And finally, way down the end of the hall, a room for madam’s husband. And then we went to practically being willing to sleep in a shoe box if the room rate was right. But this idea of having space that works for us and being able to travel at the same time, I think this is going to be a very influential concept.

Jeff: The key word is works.

Robin: Absolutely. So what sort of initiatives are you hearing about to attract the digital nomads that are interested in this leisure travel and flexible space?

Jeff: Certainly communal space. And it’s more which has multiple brands now, including the Hoxton being the leading brand, part of Accor and all the other lifestyle brands now under the Accor umbrella. I actually reached out to them last week because they said that every new hotel is going to have cowork as part of its plan. They weren’t ready to comment on it, quite honestly, but just the thought that they realised they had having that communal space, that cowork space has value and it really speaks to that trend. I know that the Hoxton brand has led the way or and it’s more by creating communal space. A lot of cowork floors dedicated to cowork memberships where locals can be a part of it as opposed to a WeWork. They could get a membership at the Hoxton and it’s kind of a groovier experience then than WeWork. And yeah, you’re seeing a lot more that there’s a brand that just went public this week called Selina London based. They got their start in South America and it’s much more communal hybrid. You can get a room as a hostel space or you can get this really sweet at their space, but they’re all about the communal experience and having surf clubs and you name it. Music is a big part of their whole programming and they’re really interesting brand to watch when it comes to trying to cash in on the digital nomad trend. There are others out there that even it’s kind of co work and co live. There’s a brand out of Singapore from Capital Land called Lyf that’s growing and it’s co work and co live and they recognise changing dynamics, especially amongst the next generation that’s starting to travel and then how they look at travel differently and what they’re looking for out of that experience. And they’re not necessarily working out of an office, they are the digital nomads. So yeah, there’s a real opportunity there and I would expect some of the more traditional brands to start rolling out more communal space or maybe brands that kind of compete with this Selina product that’s growing by leaps and bounds.

Robin: It will be interesting. I agree to see how Generation Z, as they’re being called, decides to work and to travel a couple of years down the road. Let’s talk about something that two hoteliers might not necessarily always talk about, and that’s how the cruise industry is impacting what’s going on. I was kind of fascinated to read that some of the hotel brands are starting to somehow get involved in the cruise experience?

Jeff: Well, I wouldn’t call it the cruise experience. It’s the yacht experience. Four seasons, Amon Ritz-Carlton are all building ships. It took Ritz-Carlton five years to get their first ship cruising. But it’s small. It’s maybe 50 or so suites, and they’re suites. They’re not traditional cruise line type rooms there. It’s much more luxury and ultra luxury focused. But why not? I mean, certainly the cruise business has been huge for years. And you’re starting right now you’re seeing it mostly at the ultra luxury level. And there are some other hotels that have ships, especially if they’re island based or if they’re on the shore resort properties. They also have ships available for excursions or for three or four nights for their guests, and they see an opportunity to make it more experiential and probably very profitable. But there’s another way that hotels are starting to respond to the cruise business a little different, but it’s all inclusive now that’s become a really hot development segment for the hotel business. What is a cruise? It’s all inclusive. What people love about the cruise, they don’t have to make decisions. They’re able to get on a boat, they’re fed, they’re entertained, they’re happy. Really, it’s simple. And now you’re seeing hoteliers, they’re not necessarily putting boats together, but they’re really going deeper into the all inclusive. Hyatt bought a brand and is expanding it, and they see a big future for all inclusive. Hilton’s gotten into all inclusive Marriott is getting into all inclusive and it’s kind of a similar offer only land based where it’s plug and play. You don’t have to make too many decisions and they must see this as a great opportunity because traditionally all inclusive was kind of for mass tourism and now it’s finding its way up up the chain scale and they must see this as a big opportunity or else they wouldn’t be paying so much attention to it.

Robin: So how do you see Disney in all of this? Is Disney an anomaly or is Disney something that others might replicate in that they have these enormous resorts with tons of hotel rooms and they also have cruise ships. There’s one of them that comes to my home country on a regular basis.

Jeff: Yeah, just things are an anomaly. They’ve got these enormous theme parks to support the hotels and nobody’s building theme parks like that, although there are some hotel companies. And so Amelia had a Aacta is partnering with an experiential company to, it’s nowhere near the scale of a Disney, but it’s putting together kind of a theme park in a more futuristic way with a lot of tech driven experiences. But yeah, Disney just takes advantage of their brand to get on the seas and build ships. And certainly you can take that Disney experience to a limited degree and, go on sail with the kids. It just gives Disney another opportunity to to sell their experiences away from their parks.

Robin: Yeah, it’s interesting times. You mentioned technology. It’s fair to say there’s quite a debate regarding where to draw the line between technology that adds value and technology that simply dehumanizes what should be a high quality guest experience. What’s your take on this? Where do you see all of this heading as we go forward?

Jeff: Well, I’m kind of old school. I like the human touch, but I’m I’m not the target anymore. Next gen travelers, they like things seamless. They don’t want face to face. I think they’re afraid of it. So using technology to make an experience more efficient for the traveler and for the hotel company. Talk about labor issues. No doubt this is going to really take off in the next decade where personal service is being replaced by technology. Hopefully the hotel companies and I think they’re trying are going to take advantage of this efficiency that they’re creating with technology to put the right people in the right places so that they can provide a bit of high tech and high touch.

Robin: Yeah, I think you’re right about that. I’ve interviewed a couple of people recently who are specialists in AI developments for the hotel industry, and they keep saying the same thing, that if you get the technology in the right place at the right time, what you’re actually do is free up highly trained staff to have better quality interaction. And I found that idea really fascinating. We’ve got a couple of minutes left here. And as everybody knows, you’re deeply connected to the hotel M&A sector. What trends do you foresee developing in 2023?

Jeff: Well, deals are still getting done. Lenders are still lending to a degree. And there are assets that are going to feel distressed as they try and refinance at higher rates or it’s no longer going to pencil and they’re going to look to be selling. And the bid ask spread will start to become more manageable where deals are going to get done. It’s expected that rates will flatten by the second half of next year. And are they going to get three and 4%? Probably not, but they’ll get seven, six, seven, eight. And there is enough cash flow in some of these assets that want to trade that more deals are going to get done there. Hotel real estate is still very attractive. It’s a small percentage of the overall commercial real estate space. But it’s been delivering and I expect it will continue to deliver next year. Again, second half of next year, I think is going to be very robust. And the transaction side of things, as far as big deals, I don’t know. I haven’t heard of anything. But there’s always surprises. And most of the deals getting done now are kind of bolt on transactions where a bigger company sees a hole in their opportunities and they will see the perfect smaller acquisition that fills that hole. And I think you’ll see more of those. But individual transactions and small portfolio transactions second half of 23 should really heat up. And what I’m hearing.

Robin: Well, I think we’re living in an interesting time, as they say in this regard. Jeff, I want to thank you so much for your time today. It’s always a pleasure to be able to catch up. You’ve been listening to the Innovative Hotelier podcast brought to you by Hotels magazine. Join us again soon for more up to the minute insights and information specifically for the hotel and hospitality industry.

Robin: You’ve been listening to the Innovative Hotelier podcast by Hotels magazine. Join us again soon for more conversations with hospitality industry thought leaders.