Watch now | Innovation and survival in the hotel sector

The hotel sector has had strong levels of growth in the UK in recent years, and has seen exciting innovations as a result – however, in light of the pandemic, it has had to switch to survival mode and adapt its offer and model.

Ed John was invited to chair the Leisure Property Forum webinar: Don’t hand in the keys! – innovation and survival in the hotel sector with some of the top talent from the hotel and hospitality industry. Below is a summary of the key takeaways. 

Marc Finney, Head of International Hotels & Resorts at Colliers International UK plc, explained how the pandemic reduced international travel in 2020 by 60% (and it is worth remembering that the pandemic only affected the final 9-10 months of that year). The impact has been deeper and far longer-lived than any of the crises since the Second World War. Even 9/11, SARS and the credit crisis in 2008 barely dented an upwards curve for international passenger journeys, but COVID-19 has taken international travel back to levels not seen since the 1980s.

The recovery has not been evenly distributed across the UK. Traditionally strong markets such as London and Edinburgh, whose resilience is built on international visitors, have suffered the impact of the COVID-19 crisis much more heavily than smaller and lesser-known markets, which have been the top performers in 2020.

Although the market has fallen off a cliff, there is a trampoline waiting at the bottom. This is a hiatus rather than a structural issue. Domestic leisure spending is already back to almost pre-pandemic levels and by summer things will look a lot more normal. The UK in particular has strong domestic demand to replace international travellers in ways that some resort countries (like Spain and Greece) do not. International visitors will start to return in substantial numbers from Q3 & Q4 onwards and events and activities like festivals are re-starting and taking bookings for the summer. Analysts anticipate that by 2023, occupancy will be back to 2019 levels except for a very limited number of cases – some will come back more quickly. Budget hotels will recover first – with luxury hotels likely to face downward room-rate pressure and unable to offer full service in the usual way for some time to come.

Nicholas Northam, the Executive Vice President-International at Interstate Hotels and Resorts, gave some food for thought about keeping staffing costs low by hoteliers investing in multi-skilling staff so they can be redeployed flexibly in different roles. The pandemic has given operators the opportunity closely to analyse their costs and find innovative ways to make a hotel profitable with occupancy in some cases as low as 40% and the need to target guests from the construction, medical, military and blue-light sectors with a drop-off of business and leisure travel.

Sarah Green, Director and co-founder of HotelFinance, explained that businesses with a profitable underlying business prior to the pandemic who maintained a dialogue with their lender would almost certainly find that their operations are supported. Those who were struggling before March 2020 may face closer scrutiny and pressure from their lenders towards the end of 2021. Refinance and valuation continue to prove difficult but private equity is waiting in the wings. The "war chests" of several £bn, held by funds to buy the kind of distressed assets which returned to the market after the credit crisis, are unlikely to be spent fully in the short term.

The bigger picture is that – with adaptation and innovation – the hospitality industry will bounce back strongly.