Imagining the Hospitality and Hotel CRE recovery

One of the hardest pandemic-hit sectors in the last 12 months is travel and tourism, a space with significant overlap with commercial real estate (CRE). For those who trade in and invest in hotels and hospitality CRE, it has been a dark time – and sadly analysts aren’t promising a rapid bounce back. Rather, we are hearing estimates in the region of two to three years for a return to pre-Covid-19 levels – or longer, if major markets are affected by further “waves”.

Economic Impact

According to research by Northern Trust, tourism and travel are worth an estimated 10% of global GDP, and provides jobs for 330 million people. Forecasts from Oxford Economics and the United Nations World Tourism Organization (UNWTO) in 2020, predicted that international arrivals would drop by “over 70%, contributing to about 200 million job losses”.

That was their “worst case scenario” last year, but with multiple waves of this health crisis still being felt around the globe, the final impact is still to be assessed. 

Sector specifics

There are many things contributing to this, not least of all the correlation between travel and the spread of the coronavirus. Because this link was so immediately clear, international travel was all but shut down in 2020, and for many countries that remains the case with borders closed for anything other than essential travel.

As investors at Northern Trust explain, hotels are a “highly cyclical sector that experiences an overnight collapse in demand”. That speaks to the viability of tenants and operators in tough times, as well as the investment prospects that flow thereafter.

The acceptance for work-from-home will also keep more business travelers away and for longer, so areas that have economies built on conferencing and eventing are unlikely to see an uptick in business soon. Tourism recovery will, instead, start in cities that have clear pandemic-mitigation measures in place and those that can promise a safe “bubble” for tourists.

Looking forward for sustainability

On a more positive note, commentators have made the point that this is an opportunity to reset in many ways – shifting towards more sustainable tourism and hotel development practices. Deals with clear environmental, social and corporate governance (ESG) principles will sweeten the deal for investors.

Outliers and options

A handful of destinations are expected to buck the trend, with sharper tourism increases, and a swifter hospitality CRE recovery in conjunction. Parts of Australia, for example, are already seeing a shift towards new inventory.

Hotel shares movements also reflect optimism. As Million Acres reports, “As of March 19, 2021, Park Hotels and Resorts (NYSE: PK) was up 33.4% YTD, Pebblebrook Hotel Trust (NYSE: PEB) 35.4%, and Hersha Hospitality (NYSE: HT) up 47%”.

“That makes a good case for real estate investment trusts (REITs), says Steven Vazquez, NAI Global Capital Markets Hotel Expert, “and shows a willingness to buy in now as people think the bottom was reached and things looking up.”

Thought leadership: How CRE fits into corporate strategy

The cliché of “Location, location, location” applies in commercial real estate (CRE) as much as residential, but what factors you bundle into that assessment are, naturally, vastly different and should be explicitly tied to corporate strategy. That’s the realm of corporate real estate management (CREM).

Corporate decisionmakers

A savvy corporate client on the hunt for premises will be asking whether a proposed site will support their corporate goals.

When considering a potential position for offices or logistics, for example, an assessor might ask about the transport links, the nearby shops and facilities. They may consider perception and whether the location is in keeping with brand identity.

They will need to understand the current and future demands the company will make of a location, and how the lease or sale terms will be perceived by a board or management team.

Access to (human) resources

There is another oft-overlooked location factor that NAI argues should form part of a CRE strategy: talent and access to the right people.

This is the nature of cities or areas that become hubs for specific industries and sectors: they have a rich pool of workers with the right mix of skills to draw from. If you’re looking for the top geologists in the world, you probably want to focus on an area associated with mining. Want people who are passionate and knowledgeable about the ocean? Try Hawaii. Silicon Valley, and increasingly Texas, are meccas for the technically minded.

There’s remote work and transferable skills to consider, of course, but generally speaking a talent pool linked to an area is self-sustaining, in the way that Silicon Valley and Stanford will always be linked in their mutual development paths.

What type of staff you envision filling your hallways and boardrooms will also inform other location considerations: like access to good schools, parks, or public transport.

Property as an asset

Last but definitely not least, the right property is an asset and an investment with future dividends. This is why a smart broker, or their corporate client isn’t just looking at what is now, but what could be, what’s on the horizon, and any prevailing trends that need to be considered.

A client with explicit return on investment (ROI) expectations or a particular appetite for risk – as just two examples – should place that information on the table from the get-go, as premises can be (and often are) serving the dual purposes of functional and financial.

Remember: business strategy should drive a real estate decision, not the other way round.

Prop trends: Sustainability is the new black

The Covid-19 pandemic might have been an unforeseen crisis that sent the world spinning but, general volatility and the incidence of global or major crises are expected to rise in the coming decades. This is the result of a complex matrix of overlapping issues, including climate change, globalization, population growth and urbanization, and migration.

Against this backdrop, analysts have been warning that companies need to relook at their plans and forecasts through an ESG criteria lens. ESG stands for environmental, social, and governance.

According to a McKinsey report on the topic (published in Nov 2019), “ESG-oriented investing has experienced a meteoric rise. Global sustainable investment now tops $30 trillion—up 68 percent since 2014…” They ascribe this sharp acceleration to “heightened social, governmental, and consumer attention on the broader impact of corporations, as well as by the investors and executives who realize that a strong ESG proposition can safeguard a company’s long-term success.”

ESG in CRE

ESG is a rising concern for all businesses, and commercial real estate (CRE) is not exempt. ESG within this context would include matters such as the energy footprint of a property or development, its carbon emissions, ethical and local supply chains, labor relations, diversity, and inclusivity, and then the governance procedures and controls in place to comply with the law and meet the needs and expectations of all stakeholders.

A solid ESG strategy creates opportunities for partnerships, strengthens ties with communities, and links back directly to things like corporate missions and visions, for the way you want to operate and the changes you want to make in the world. On the other hand, failing to account for ESG in your property or development plans can become a material risk for your business.

Competitive advantage

ESG platform Goby looks at these issues specifically within CRE, and they believe having an ESG strategy is a competitive advantage for CRE professionals and brokerages. There are, they say, many tangible benefits to this – such as lowering your energy costs – but moreover, emphasize the intangible benefits that flow from a solid ESG strategy.

Goby’s ESG in CRE report (hosted on HubSpot) argues: “Intangible benefits are harder to measure directly, and include metrics like tenant comfort, word-of-mouth advertising from tenants about building improvements, and a reduced environmental impact.

Attracting investment through ESG

Over and above “doing the right thing”, ESG advocates believe that these holistic sustainability matters can make a compelling investment case within CRE investing.

As the Goby report outlines, when asked what they considered essential and important elements of ESG investments some 79% of investors cited ethical parameters and values, 78% mentioned positive environmental and social impacts, and 77% reported that they believed ESG factors could play a critical role in broader financial performance.

This echoes the McKinsey investment growth story, and with those numbers, it’s not a leap to say that that’s the final word on the bottom line.

Pants on Fire

by Alec Pacella for February 2021, Properties Magazine, Financial Strategies

The 2020 election will long be remembered for a host of reasons. If you can put aside all of the noise and focus specifically on the numbers, an interesting thing occurred. The Republican candidate garnered over 72 million votes, which is the most votes ever cast in the history of the U.S. election. Except, of course, for the Democratic candidate in this year’s election, who garnered over 81 million votes.

Click here for the full article.

Eye of the beholder: Tapping into the art of CRE photography

Commercial real estate (CRE) comes alive with compelling photography, and this has never been truer than in this age where most prospective tenants and clients begin and end their search for property online.

Of course, there are some things a great photo can’t do: it can’t negotiate rates, or check leases, and it certainly doesn’t have the connections that a broker has. Thankfully, they are not competing. In CRE, a great photograph (several actually) and a great broker are a killer combo.

Here’s how to get the best visuals of your listings:

  1. Work with the professionals: If you are selling your own home, you might – we repeat, MIGHT – just get away with taking your own pictures. For a serious CRE listing, however, you need seriously great photographs that can capture a sense of place and project the potential of a site.
  • Collaborate with creative: A CRE broker may want to identify a small pool of tried-and-trusted photographers and freelancers who they can turn to as listings come up. Then they know the quality they can expect, and the photographers know the kind of photos a broker is after. Look for photographers specializing in real estate and architectural photography specifically; they come with a wealth of insight and tricks up their sleeves.

Also on this point, one must give clear briefs to the photographer, especially if there is a particular market or prospective client they want the photos to appeal to – such as startups or ‘blue chips’, niche or volume audiences, and so on.

  • Look local (and timing is critical): Knowing the area – its rhythms and moods – can mitigate some of the challenges an outsider might be faced with when capturing an office space or retail park. A local photographer can advise on what time is best for the lighting you need and want, which is one of the most critical decisions that you will make before a shoot.

A golden reflection, deep color saturation, or the sparkling backdrop of a city at night can all make the difference between a photo that shouts out to a viewer and a site that looks lifeless and cold.

  • Landscape, landscape, landscape… except when not: Almost exclusively, the landscape orientation lends itself best to CRE photography, and it is the most versatile for listings online and the types of standard content management systems many listing sites use.

There are, however, a handful of excellent reasons to break from this, such as drawing attention to an architectural feature or making a splash with printed peripherals. This “standard” operating procedure is shifting, especially as more listings are being viewed on mobile sites and apps (more directly below) in square and portrait form.

  • Tech-led: Fancy a 3D rendering or a sweeping drone shot? These kinds of photography are becoming cheaper and more accessible every day, and a professional CRE photographer will likely offer these extras or be able to recommend another service provider. Not every listing needs this, so be discerning.

Got a photography tip to share with your colleagues or an example of great real estate photography, from your listings or archives? Share this article, with your photography tip, and be sure to tag us on social media!