Six opportunities for global hotel development

In light of the tumultuous global challenges which have dramatically affected the hospitality industry, now more than ever we need to fully understand the reality of developing properties in international contexts. 

For owners, developers, investors, managers and other professionals involved in hotel development and investment, the operating environment has shifted to such a degree that as we begin 2023, we need to consider how to respond to the latest challenges. For every challenge, however, there is opportunity. Here are six opportunities for global hotel development projects:

1. Focus effort on high-growth markets

The nature of hotel investment means that there are always trading fluctuations. However, most markets have now almost fully recovered, or in some cases, surpassed pre-pandemic levels. Last year saw a substantial return of international travel to destinations which were still struggling in 2021, and this trend is expected to continue throughout 2023. 

There are also emerging or opportunistic destinations that have, or will, come to the fore. As a result, hotel development is on the rise once again. The luxury sector has seen some of the highest rate growths over the past 12 months. Investors are also interested in various accommodation options such as mixed use properties, long stay options and leisure resorts, particularly those at the upper end of the market, as these segments may be less impacted as we head into a possible recession.

2. Embrace data-informed decision making

The use of industry trading analytics continues to be a big growth area. Data has become very important in decision-making and forward-thinking data is much sought after in a world where forecasting is key. Data, which supports more accurate predictions, is particularly valuable. 

In the context of hotel investment, the trading forecast is critical. With more uncertainty than at any time, the need for accurate forecasted trading data for operational reasons is critical. For those managing asset strategies, whether to ‘hold, invest, or sell’, there has been a surge in demand for more detailed predictions. Private equity investors and real estate investment trusts want to truly understand the risk-reward options that best meet their investment strategies.

3. Respond to shifts in investment strategy

There are three trends here. Firstly, there is a strong appeal to resort locations and secondary leisure markets. Secondly, the economic crisis has led to increased appetite for extended stay due to lower staffing requirements, higher margins and proven resilience. Thirdly, there is clear evidence of more multiple income stream diversification, for example co-working, retail, gyms, spas and wellness, and hotel operators have ever-increasing knowledge on how to deliver these concepts. Investors place real value on optionality, and reducing risk through diversification is important to them.

4. Explore all deal structuring options

Current macroeconomic pressures are becoming more challenging and funding is an issue. Franchising with white label management versus traditional branded operator Hotel Management Agreement (HMA) contracts, flexible contract terms including ‘flip to franchise’ option, and exploring dual brand solutions such as full service with select service or the inclusion of extended stay, are some of the options out there. 

A shift that many have observed, along with expansion of third-party operators, is a push towards more flexibility in contractual arrangements between operator and owner in both leases and HMAs. Hotel investors and lenders are also becoming savvier, having realised that increased flexibility, such as shorter operating terms, can support them in unlocking value upon exit.

5. Act on the importance of ESG requirements

The importance of high Environmental, Social and Governance (ESG) standards is recognised not only by the actual hotel buyers, but also by their underlying investors. ESG criteria is increasingly embedded in an investor’s due diligence process. Where a couple of years ago ESG was a token gesture in a feasibility report, nowadays ESG requirements are a critical part of the offering and will be carefully reviewed before investing. 

Whilst the main international hotel brands and operators have publicly geared-up on ESG, with defined targets and measures, the upgrade of properties by individual property owners and operators is also a necessary consideration point.

6. Upskill yourself and your workforce

Hospitality should always have a long-term eye on opportunities for growth, which would help it to mitigate short-term fluctuations in the market.  

Important roles, especially on the consultancy side, exist in fields such as international hotel development and asset management, real estate investment and investment strategies and financing. These roles require knowledge of areas such as business and financial analytics, mergers and acquisitions, as well as portfolio valuations and private equity.  

This is the perfect time to invest in training and development to take advantage of this opportunity.