The 10 Best Takeaways of 2022 for the Hospitality Industry | Levenfeld Pearlstein, LLC
As 2022 draws to a close, Levenfeld Pearlstein’s hospitality and leisure practice looks back on the top ten highlights of the year in the hospitality industry. Here’s what we’ve heard from our customers and other industry leaders about the state of the industry and its most pressing issues in 2022 and what we might expect in 2023:
- 2022—Year of recovery. Industry experts agree that 2022 has been the year of recovery, with the industry returning to 2019 RevPar levels. debt, the industry performed positively and the road to pre-pandemic measures was solid. This recovery was partly driven by hotel operators and brands which increased the average daily rate in hotels with no sign of lower rates. Unlike other real estate asset classes, hotels are in a unique position because they are not bound by long-term contracts. As a result, hotel owners can minimize the impact of inflation and borrowing costs by reassessing room rates daily.
- Leisure outperformed business and international segments. The road to recovery is different depending on the hotel segments. Leisure travel continued to make a strong comeback in 2022, overtaking business and international travel. Select-service and extended-stay hotels showed stronger recovery and demand. However, demand from companies/groups was still lagging behind. Uncertainty over companies’ return-to-office policies remained a hot topic in 2022, with many speculating that we’ll never be 100% back in the office. According to a survey conducted by MBO Partners, by the end of 2022, 31% of workers could be permanently remote, an increase of 14% compared to 2019. Therefore, the impact of remote work on the request of companies/groups remains unknown. Peter Connolly, a 35-year veteran of the travel industry, believes that while leisure is dominating the recovery, business travel and group travel still lag behind and are needed for a sustainable recovery as it gets tougher. acts as the largest source of revenue for the hospitality industry. It is the business traveler who spends large sums in the hotel bar and other hotel facilities.
- The New Traveler. “Bleisure” travel or the newer term, “mule” travel, was the hottest trend in 2022. Business travel might look like a mule – business in the front, party in the back . Capitalizing on these trends, hoteliers have paid greater attention to the demands of the business traveler who has added a leisure component to their business trip. The traditional business model of a two or three day corporate meeting or retreat is now being replaced by longer stays. Also, the typical shoulder days – Thursday and Sunday – are now popular. According to Daniel Lesser of LW Hospitality Advisors, “People are still traveling; the location, the day of the week and the purpose of the trip are just different.”
- The Quest for the Outdoors: The Sunbelt states are hot in more ways than one. The pandemic has led to an increased demand for outdoor spaces. Sun Belt states such as Florida, California and Arizona were the fastest growing RevPar destinations in 2022. Hotel guests continue to migrate to these locations due to the warm climate and outdoor experiences. An interesting trend will be how convention planners adjust meeting space to accommodate business travelers who don’t want to be stuck in a conference room all day and are looking for venues that offer amenities and activities. outdoors.
- Lifestyle and experience are a priority. The pandemic has fueled the proliferation of “lifestyle and experience” brands by reigniting travelers’ desire for new and unique travel experiences, such as adventurous vacations, relaxing retreats, iconic experiences and immersion in communities. local and nature. Therefore, increased customization and specialization can generate increased value for hospitality businesses. Most travelers say they would rather spend money on an experience or event than a consumer good. To capitalize on this trend, our client, Waterton, has successfully launched an “Outbound” brand which seeks to capitalize on the growing demand for leisure travel by developing or converting non-institutional hotels into authentic lifestyle properties. locally in idyllic locations, such as Jackson Hole, Wyoming and Mammoth, California. The majority of major hotel brands also have lifestyle brands in their portfolio, with Hyatt recently announcing the acquisition of Dream Hotels, adding an additional luxury lifestyle brand to the Hyatt family of hotels.
- Rising debt costs have changed the capital stack. With inflation, rising interest rates, upcoming PIP requirements and rising operating costs, hotel owners and developers have struggled to find the financing needed to fill the necessary capital. construction and maintenance of hotel properties. As a result, hotel owners and developers are getting creative with financing options and the capital stack looks different. For example, Property Assessed Clean Energy Financing (PACE), EB-5 funds, new equity partners, vendor financing, and hotel brand wallets may be options.
- Work: Retaining Talent and Retaining Employees. When asked, “what keeps you up at night?”, a CEO of a major hospitality company at the Lodging Conference in Scottsdale in September 2022 replied, “Housekeeping.” The labor crisis is more than just a labor shortage; it’s a salary issue, an immigration issue, an employee loyalty issue and so much more. Attracting and retaining the right talent in the hospitality industry remains a major challenge. Most hotel owners are currently understaffed. With a recession looming, it will be interesting to see if hoteliers will hold on to staff in the face of another downturn. One of the lessons of the pandemic is that if you lay off employees, they may not come back when they are needed.
- Technology is at the heart of the hotel experience. Technology was at the heart of the hotel experience in 2022 and beyond, whether it was using technology to manage hotel operations, to supplement the workforce, or to integrate it to improve the customer experience. The trend towards digital and contactless services has gained new momentum. An overarching question is how technology will affect traditional customer-facing services. Customers who have grown accustomed to technology in other areas, such as retail, will soon expect the same convenience in accessing their hotel rooms. Some operators warn that technology can never substitute for customer experience and that customers want to be treated as individuals and need establishments to go the extra mile to greet customers personally. Additionally, the cost of using this technology can be a challenge and many hotel owners would prefer to have a centralized system to run multiple tech gadgets.
- The battle between Airbnb and hotels could be simmering. While Airbnb and other short-term rental options were public enemy number one for hoteliers around the world, the pandemic has changed the conversation with successful hotel brands in 2022 by showing guests they can provide better services and facilities. All major hotel brands have launched new cleaning policies in line with pandemic-related hygiene principles. Hotels are also more generous with their refund and cancellation policies than short-term rental options. Hotels pride themselves on consistency of experience and loyalty programs, while short-term rentals are unregulated and random entities depending on the host. Hotel brands are also creating short-term rental and extended-stay options for families. For example, Marriott offers a service called “Homes & Villas”, which offers travelers more than 60,000 private homes and villas in approximately 75 countries. Recently, Marriott expanded its portfolio of serviced apartments with the launch of “Apartments by Marriott Bonvoy” in the United States and Canada.
- Diversity, equity and inclusion remain top of mind. The hospitality industry continues to recognize the importance of diversity, equity and inclusion (DEI). Most hotel brands and operators agree that DEI initiatives are a priority. For example, Marriott launched “Marriott’s Bridging the Gap,” a multi-year, $50 million development program that aims to break down barriers to entry that historically underrepresented groups face in owning and developing. of hotels. Because financing is a barrier to entry, Marriott’s program provides financial and other incentives to historically underrepresented qualified owners and franchisees who hold majority ownership in certain brand projects. Over the next three years, eligible development projects built or converted under Marriott’s Bridging The Gap program are expected to reach $1 billion in total asset value for historically underrepresented homeowner groups.
Overall, 2022 has been a great year for the hospitality industry, especially considering the leisure segment which has been a major driver of the recovery at 2019 RevPar levels. 2023, the road to recovery is unknown. Economists are divided on whether the United States is or is heading into a recession and there could be continued inflation, geopolitical disputes (like the war in Ukraine) and rising costs or lack of availability. financing. Are the increase in ADR rates sustainable? Will leisure continue to dominate in the face of a recession? Will the group and businesses return to pre-pandemic levels? The good news is that billions of dollars have been raised to deploy debt and equity in the accommodation industry in the United States. With existing senior debt set to mature in 2023, there could be opportunities for cash-rich investors looking for well-capitalized long-term opportunities. With the ability to change rates daily, investing in hotel assets is one way to fight inflation.