Alta Thoughts (October 2024)
By Rakesh Patel
It was a pleasure to share a panel on Hotel Investment Returns at HICAP SG. And always good to listen to and exchange thoughts with the hotel community in Asia-Pacific. A few sound bites:
- 2023/2024 was strong for top line growth, whilst costs are normalising. Expect the red hot occupancy and ADR metrics to taper off as we head into 2025 – from STR
- Long-term the structural growth trends look positive for Asia with guest demand for hotels (+5-7%) outstripping supply (+2%), driven by shifting demographics and supply constraints – from CEO Accor
- The large operators remain interested in growing by acquiring operating platforms, as long as a complimentary fit, eg. most recently Hyatt acquired The Standard – from CEO Hyatt
- Availability of capital is the key to kick-starting hotel transaction volumes. Banks remain biased towards blue chip sponsors with a focus on cash flow/ICR and lower LTVs. The lending gap for SMEs and leverage above 50% LTV is partly being filled by non-banks.
- Sustainability remains a discussion for all. Adoption of green best practice in Asia is behind Europe. For investors and owners the focus is on sustainability initiatives with a positive ROI.
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.
Hotel Earnings: 7 Things We Learned From Companies in the Skift Travel 200
There were several key themes coming out of the recent hotel earnings season. The good news is hotel labour and cost inflation is normalising, along with broader macro inflation patterns. Contract labour costs are down and supply chain issues have eased.
Pricing power is here to stay, as hoteliers try to protect rates, at the expense of occupancy. This also flows straight through to bottom-line profitability.
The rush of independent hotels adopting big brands, is not as broad as it seems. Some owners, point to big brand fees, expense in meeting brand standards, and expensive key money offers.
The next frontier for green building certifications
Are the popular green building certifications fit for purpose in an evolving landscape? The likes of LEED, BREEAM, etc, are focused on design and construction, yet there is a market shift towards also monitoring building performance.
The transition to net zero is driving this change, as occupiers, owners and investors demand more energy efficient buildings, to fulfil their environmental commitments. No surprise, with 27% of global emissions coming directly from building operations.
The positive news is certification bodies are catching-up and broadening reach, with LEED v5, BREEAM v7, CRREM, NABERS, etc.
From an owner and investor perspective, whilst there is a case for green premiums for green buildings, the downside risk is being left holding, non-green compliant buildings.
What’s new in consumer wellness trends?
How are consumer preferences shifting and what are the opportunities in the $1.8 trillion global wellness market? McKinsey dissects the market following a survey of 5,000 consumers, with the vast majority of respondents reporting wellness as a very important priority.
Areas of growth and opportunity include:
- Healthy aging. Managing the tripling of the old-age dependency ratio 1950-2050, alongside growing demand of longevity products
- Weight management. One in three adults struggle with obesity in the United States, leading to the fitness boom and the evolution of prescription medicine
- Gut health. Awareness has become more prevalent, and led to growth in probiotics, drinks like kombucha and at-home microbiome testing
- Sleep. With multiple factors impacting a good night’s sleep, it is a challenge and opportunity for brands to deliver holistic and comprehensive solutions
- Digital. The impact of Gen AI on wellness is already clear, with connected devices/wearables and app-based coaching, leading to hyper-personalisation.
