Alta Thoughts (September 2024)
By Rakesh Patel
The Federal Reserve kicked-off an easing cycle with a bumper 50bps cut this week. According to Fed Chair Jerome Powell, this is not the Fed hitting the panic button on the economy, and thus far markets agree and are behaving. To quote, “We do not think we are behind (in cutting rates), but you can take this as a sign of our commitment to not get behind”.
The cut should inject some optimism into the hotel sector. The positive impact can be multi-fold including: a jump start to hotel dealmaking, as the return models make more sense, and investor psychology improves; better consumer/guest sentiment and spending; enhanced bottom-line hotel performance as debt servicing costs reduce; and potentially a new round of construction with lower financing costs.
The quantum of the positive impact will depend to some degree on how far and how fast the Fed cuts rates. The futures market indicates a move to 4-4.25% by year-end and 3% by middle of 2025.
Here are a few of our recent thoughts posted on LinkedIn. Always good to hear your feedback. You can follow us directly on LinkedIn and go to our website.
IHIF HK
It was a pleasure to share an insightful panel on lifestyle hotel brands at IHIF HK, and great to see the return of hotel events to HK.
We discussed delivering some clear USPs in this increasingly competitive space, to allow differentiation, attract guests and create natural barriers to entry. This can apply to sub-sectors like wellness, with brands like Vikasa, and boutique luxury from Teardrop Sri Lanka. Specific asset selection is key when considering a lifestyle repositioning, focussed on factors like the target consumer.
For investment returns, considerations covered were the total room revenue premium generated from upselling and maximising the revenue per m2, as public spaces are activated, versus the potential repositioning capex spend.
‘Lifestyle wars’ ramp up as hotel brands compete in crowded segment
Lifestyle brands remain in vogue. Hyatt’s recent acquisition of The Standard, continues the aggressive move of large hotel groups into acquiring operators in the lifestyle segment: Hilton/NoMad/Graduate; Accor/Ennismore; IHG/Six Senses.
Why the appetite? Higher interest rates has meant less new build hotels for operators to pitch for, hence the shift to acquiring operator agreements and conversion bids armed with a plethora of brands.
Why lifestyle? Operators are reacting to evolving consumer taste for more authentic experiences, that requires more curation including design, F&B/activities, localisation.
Nearly 1.8 billion adults at risk of disease from not doing enough physical activity
The WHO says we are getting more physically inactive, despite the proliferation of fitness concepts, apps, centres, and games. 31% of adults globally, or 1.8bn people, are not doing the recommended level of activity, and worryingly this number is growing (26% 2010 to 35% 2030). The highest rate of inactivity is in Asia Pacific; women tend to be less active than men; and the older demographic is more inactive.
There is an huge opportunity cost here, both economic and societal. Increasing physical activity not only leads to less disease, better economic productivity and less burden on the health system, but also improves mental health.
As Dr Rüdiger Krech, Director of Health Promotion at WHO, comments: “Physical inactivity is a silent threat to global health, contributing significantly to the burden of chronic diseases. We need to find innovative ways to motivate people to be more active, considering factors like age, environment, and cultural background. By making physical activity accessible, affordable, and enjoyable for all, we can significantly reduce the risk of noncommunicable diseases and create a population that is healthier and more productive.”.
