The AG hotels team had a great conference at the Annual Hotel Conference (AHC) where we attended some compelling seminars and reflected with our clients and network to discuss current issues which are facing our dynamic and fascinating sector.


We have pleasure in summarising a few of these key issues as follows:

Brexit and its Negative Impact on Immigration

The recruitment and retention of staff from continental Europe seems to be the key issue facing the sector at the moment. On the plus side, whilst the devaluation of sterling has resulted in an uplift in occupancy and RevPAR (which has attracted incoming travellers to the UK and record numbers of UK citizens are 'stay-cationing'), the flip side of devaluation means that continental European workers do not find work in the UK as attractive as it previously was. In short, they are currently not able to send as much money and there is concern about them not feeling welcome in the UK. As a result, agencies are struggling to find a workforce willing to work in the UK.

As we all know, the sector relies on continental European workers to work in key such as housekeeping, kitchens, front of house and other key areas. Many UK destinations are experiencing labour inflation as the demand for labour cannot keep up with the supply. An example is Bristol where staff wages have increased by 5% in this year to date.

Adding fuel to the fire, are the immigration stats - 340,000 people reportedly migrated to the UK in 2016. Only 220,000 people have migrated to the UK this year to date. The government wants to reduce this to 50,000 people a year which would have a devastating effect on our sector. The sector needs the government to listen more to our industry and work harder for it.

During panel discussions on the topic "State of the Nation – an Operator's View". David Taylor of Principal commented that hotel operators need to be better at hiring and retaining their staff which introduced some interesting examples of some of the measures being taken to recruit and retain staff. Serena von der Heyde at Georgian House Hotel commented that the Georgian House Hotel is very involved in apprenticeship schemes and has had a lot of success with them. Serena also commented that the sector needs to be flexible to the needs of its staff who are willing to irregular shifts and gave the example where two sisters who are hotel staff and who are both working parents working irregular shifts at the hotel as chambermaids, share the shifts between them. It's a win-win for both the hotel and its staff.

Nicholas Northam at Interstate commented that all their recruitment is done online. They have also launched an app so their staff can effectively manage their career progression which has been well received by their staff.

We still do not have a great deal of clarity as to the Government's proposals for a post-Brexit immigration regime. However, it is clear that staff retention will also be key to alleviating the effect on the sector that the inevitable reduction in EU migration this new regime will, and has already begun to, give rise to. We have been given assurances in recent months that there will be a mechanism for the 3 million EU nationals currently resident in the UK to register with the Home Office for "settled status" and thus retain their right to work in the UK. As such, in light of the increased challenge of recruiting new EU migrants to fill labour shortages, retaining existing EU migrants working within the sector is more vital than ever.

AirBnB

The sector should not become complacent about the effect of AirBnB. It is difficult to measure the impact that AirBnB is having on the sector because it is difficult to measure the business which the sector is not getting. We wrote about some of the legal issues that AirBnB has managed to side-line to date, in our first edition of our bi-annual bulletin, which can be accessed here. In addition, AirBnB does not share the costs that hotels have which as labour costs, OTA costs and the high taxes that burden our sector.

AirBnB recently launched their own business platform focusing on the business traveller which already accounts for over 10% of AirBnB's business. This platform offers a "business-traveller ready" service such as a 24hr reception and concierge.

Panelists gave real-life examples of their once-loyal and key guests now switching to AirBnB to accommodate their staff who travel on business, as opposed to staying in their hotels. One example is where a guest used to, without fail, book a vast number of rooms at a hotel in Central London, once a year to attend an annual event, in London. Earlier this year, this guest had moved its business to AirBnB citing cost as the primary driver where it could secure accommodation for its staff for half the cost of that offered by the hotel.

It has been reported that AirBnB's founders believe they will earn US$3.5 billion a year by 2020 (before interest, taxes and depreciation). That's up 3,400% from last year's earnings. It has reportedly spent less than US$300 million of the US$3 billion it raised from outside investors since its creation – a stark contract to Hilton who had US$7.2 billion in expenses in the first 9 months of 2016. It is certainly not the time for the sector to become complacent and nor has it been. The sector has been doing what it does best – creating and exploring opportunities then turning these into a reality. Which leads nicely into the next part of our article…

Creating and Exploring Opportunities

For a number of years now, the sector has been reacting to the experiential society. With sterling being so weak, the influx of foreign visitors and increasing numbers of UK travellers opting for 'stay-cations'. David Bailey and Joe Stather at CBRE reported that 25% of UK travellers opted for a stay-cation this year – a record high! Now is the time for the sector to show just how dynamic it is by recognising the opportunities there are available to it and reacting to those opportunities.

In his address to the AHC's delegates, Greg Dyke (who runs Vine Hotels, amongst other achievements), Greg discussed one of the key USP's he looks for when considering the acquisition of a hotel, are what opportunities there are for it? Are there opportunities to build an extension or residential areas within the grounds? Camil Yazbeck at Patron Capital also discussed how to create opportunities in the private equity sphere during the seminar "Every Penny Counts – How to Enhance the Value of Your Prperty". One of the examples he gave was to enhance the product offering with 5 years of its acquisition and then selling it on, as a stabilised product.

There was much discussion on focusing on creating and exploring opportunities for the consumer. During the seminar "Embrace the Changes, Explore the Opportunities", Lee Penson at PENSON suggested that it is time for a "reset" in the sector. Consumers don't just want a "bed" – this includes fun, efficiency and convenience. This comment tied in with comments made by David Taylor who discussed one of the key issues he inherited when he joined Principal – there were 3 hotels in its portfolio, in key city centre locations which were all very successful. He wanted to make them more successful and wanted to differentiate them from other hotels. What better way to do this than to ask the consumer… In doing so, he had pressed the "reset" switch at Principal. Principal talked to a group of customers and asked them what they would be interested in seeing to differentiate their hotels to others. The overwhelming response was "value" so Principal have developed a generosity promise, for example, they have built a 'corner shop' in each hotel which sells products such as drinks and snacks, at high street prices.

At The Georgian House Hotel, Serena van der Heyde recognised that many of her guests were coming to London especially for the Warner Bros. Harry Potter Studio tour in Watford. In reaction to this, she turned some basement rooms which were not being used, into "gothic" decorated rooms to attract customers who sought a Harry-Potter type experience. The room are over-subscribed (without OTAs) and have been a huge success.

More generally, a number of speakers and people that we caught up with were all in agreement – although the sector is great at identifying opportunities and reacting to circumstances affecting it, the sector needs to be more forward-thinking and catch up with more flexible models seen in other sectors, such as "We Work" where if can find the "perfect fit" for its customers depending on their needs. For example, it has different price points available depending on the service required by its customers e.g. customers can rent anything from a laptop and a hot desk from 2 hours to a private office for a month.

Embracing Change

During "Embracing the Change, Explore and Opportunities", Thomas Dubaere from Accor Hotels commented that "the sector needs to change or it will die" – to survive, the sector should open its eyes and identify what consumers are looking for. Most hotels have to serve 4 different generations who are all looking for different experiences. To better serve these groups, the sector needs to embrace the digital transformation taking place in our sector. The sector needs to consider how artificial intelligence is keeping brands fresh. Thomas said that Accor Hotels are very happy to have OTAs – the OTAs have helped to build their business, however, the OTAs need to be managed.

There was much discussion about OTAs but a stark change in attitude – where the sector seems to have recognised that OTAs are here to stay and consequentially it needs to work with them. During the seminar "Make Love Not War – Embrace OTSs for a Brighter Future", David Taylor at glh Hotels commented that whilst OTAs have been good for the sector, the sector needs to be better at managing OTAs, with specific reference to their fees (which can be as high as up to 20% of the price of a reservation).

During the seminar "The Big Debate – To Brand or Not To Brand?" Christopher Michau from Expedia and Tim Walton from Marriott discussed their recent joint venture where their customers could book a whole Marriott Vacations package, including the flight, a Marriott Hotel, theatre tickets and a tour.

Panellists and delegates also discussed a number of other challenges and opportunities facing the sector, ranging from F&B offerings in the sector to cyber-attacks threatening our sector. AG's hotels sector team is a multi-disciplinary one-stop shop for our sector-clients dealing with the full spectrum of legal issues facing the sector, ranging from reputational issues, employment and immigration law issues, establishing IT platforms to the acquisition, development and disposal of hotel and can advise on such issues both in the UK and internationally.

If you would like to know more about our sectors knowledge capabilities and experience, please get in touch with our Hotels sector team.

Leona Ahmed

Leona Ahmed

Head of Real Estate Sector

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Lee Sheldon

Lee Sheldon

Partner, Funds and Indirect Real Estate
London

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