Insider Insights: Why the Hospitality Space is Ripe for Investment & Where Hoteliers Should Focus Their Efforts
Is now a good time to invest in the hospitality space? And if so, where should beleaguered hoteliers and hotel owners be investing to improve their business performance and capitalise on opportunities? Tim Shearman, Chief Executive of Four Corners Hospitality Group, FCHG (Four Corners Hospitality Group), a leading, global end to end hotel owners support business shares his thoughts and experience.
It is unquestionably a volatile marketplace for the hospitality sector right now, with more converging issues impacting us at the same time than ever before. Having proven over the past three years that hospitality is an incredibly resilient business sector, what many are focusing on right now is how to ensure that this next period of trading (Q2 Q3) continues to build back, strengthen, and sustain their operating models. We believe that whilst trading is good, a cautious approach to forecasting needs to be adopted because we fear that Qs 3&4 may see hotels that are heavily indebted or cash restricted will struggle as trading become harder - therefore potentially creating more opportunity for investment.
It is not an easy task to manage any business in the current climate and it is especially complex for hospitality businesses. There is so much in play and so whilst demand for hotel bookings remains high, there are a multitude of commercial issues pressurising the bottom line. It is often difficult to know where and how to invest in your hotel asset to take advantage of or limit the risks associated with the current climate. Because of such shifting sands, then it might be easy to conclude it is not a good moment, or even commercially possible to turn these dynamics into opportunity.
However, you look at it, there is a lot going on and decision making for hotel owners and investors is loaded because there are so many areas of challenge which all impact on each other and the performance of the business. Challenges include the cost-of-living crisis, protecting the supply chain, the ongoing Ukrainian/ Russian conflict, and the legacy of Brexit which has massively impacted talent acquisition and retention. All this is set against a backdrop of urgent demand for improved ESG (Environmental, Social, Governance) performance from all potential investors and against huge financial volatility and inflated costs of borrowing. It would be easy to conclude that it is not a wonderful time to invest in hotel assets.
Conversely whilst we are of course advising clients to act with caution, to take time to scenario plan and really undertake due diligence, we are also providing strong advice that it is an optimum time to get involved in this exciting, innovative industry, quite simply because there is so much change, and with change as we all know, comes potential. The opportunities exist of course, for those with access to funds, those that can identify the right investment opportunity, and those that have a team to support acquisition and turnaround of any investment. And that is of course where our team comes in.
At Four Corners Hospitality Group because we have access to an unparalleled weight of industry expertise and experience from our years working in the industry both operationally and at investment level. We can advise, support, and shape our client's decision making. We can help them to identify and capitalise the current market trends provide.
With our experience in leading, creating and transforming hotel businesses of every shape and size and at every stage of their lifecycles over two decades, we know there are exciting investment opportunities and strategies that will deliver a return and improve your hotel business performance despite the volatility of the current climate.
A few factors shaping our cautious optimism
1. History tells us, recessions, and tougher financial times force weaker hotel investments on to the market and so we predict by Q3/4 there will be rich opportunity for hotel investors to snap up or buy into under invested hospitality assets.
2. Many hotel owners and hotel investors that have traded through the Pandemic have managed to keep going because of Government backed support. With this drying up and with interest rates remaining high, access to cheaper money which has bolstered so many for so long, disappears, and with-it tough decisions are forced. This is driving speculation across the industry that hotels struggling will come up for sale.
3. Because there has been so little action in the acquisitions space since Pandemic years then there is considerable appetite from investment banks and investors looking to buy/ invest.
4. Whilst asset pricing and valuations remain high – buoyed by performance last year outstripping all forecasting. It is possible that as things slow and the impact of cost-of-living hits consumers' pockets then in Q3/4 we will see a less buoyant mood and demand and the lag in post COVID booking and higher than ever pricing will diminish, and reality will return bringing with is less inflated financial performance. This is when we expect to see some significant opportunities for exciting investment open up.
5. Innovation in customer experience led hotel stays present a hugely untapped niche and for investors and hoteliers with vision, opportunity remains ripe. So too the impervious luxury market which remains unfaltering, and demand is high for lux, ultra lux, and increasingly personalised experiences.
In summary, we think the second half of 2023 will become an exciting time for hotel investment opportunities with affordable acquisitions ripe for exploration.
Shorter term our team can help existing hotel investors improve their business performance in all areas of hotel ownership and asset management and begin to position for exit.
Mid-term we can support any investor looking to get into hotel ownership with a full end to end service from identifying opportunities to running robust due diligence, to setting a strategy to deliver value add and realise the value of your investment.