Hotelisation: a two-way street

Hotelisation has become something of a buzz word in real estate circles lately. At events such as MIPIM and IHIF, the hotelisation of real estate has been a hot topic. But what does it actually mean and what are its implications and limitations?

Basically it is the application of hotel-type services and a hospitality service ethos to other real estate classes such as offices and homes. Office buildings have been the prime target for hotelisation – and this has led to something of a change in philosophy within commercial real estate whereby the building occupants should receive the same level of service within a commercial building they would expect at a hotel or restaurant. It also places far more emphasis on the needs and behaviours of the individual worker rather than focusing exclusively on the tenant companies.

In many workplaces now, concierge services are the norm, and common spaces feel less like work and more like hotels. Shared areas such as cafés and lobbies where employees can have ad-hoc meetings and extend their workspaces. In new office buildings, lobbies are being built to look less austere and more comfortable.

Guy Windsor-Lewis, CEO and founder of proptech company Locale, says: “Not only is the emphasis on delivering a hospitality style service but also on creating a destination. One that stands out to occupiers as an environment that fosters creativity and collaboration for its employees; one that understands their customer base – appealing to younger generation digital natives who expect a seamless digital experience as standard.”

This trend began in cutting edge co-working spaces but is now firmly lodged in the mainstream, says Megan Matthews, Mid-Atlantic managing director at JLL, who told Bisnow: “I judge an office’s lobby just like I would a hotel’s. What kind of amenities are there signs for? Do the staff know their building inside and out? And most importantly, how comfortable and cared-for do the tenants seem?”

“Coworking spaces started offering a seamless experience from the moment a tenant walked in the door,” says Matthews. “That included cafés, breakout and lounge spaces, fitness centres and of course, workspaces. And when you enter a hotel or a coworking space, you see consistent branding in terms of design and amenities, even scents, that remind you of where you are. Property management has grown tremendously over the past decade. As tenants look toward a more concierge-style experience, serving clients and their exceeding expectations is paramount. Property managers need to create an environment for the human experience to thrive.”

Digital property management platforms are accelerating the hotelisation of real estate, says Windsor-Lewis. “While occupiers benefit from instant and seamless customer service round the clock, asset owners and landlords can utilise real-time data recorded from a portal to ensure efficient building performance and deliver a service that meets the needs of customers. However, the key to its success is centred around finding the right match between people and technology. The interests of both must be aligned, offering a seamless service that is in keeping with the specific building and its brand.”

The residential market is also embracing hospitality in its offer. The multi-family sector in the US and the PRS/BTR and coliving market in Europe is increasingly offering residents amenities such as gyms, co-working space, shared cooking and gathering facilities, and in somme cases, entertainment such as live music and cinema.

Architect and masterplanner Chapman Taylor says: “To attract and retain target group tenants, the right lifestyle and consumer propositions are important. Added amenities, such as a concierge, are part of the BTR lifestyle formula, and this is where BTR distinguishes itself from the Build-for-Sale sector. Other types of lifestyle facilities might include workspaces, a club room, communal lounges, roof terraces and gyms. Additional income can be generated from these facilities, although the prime objective is the contribution they make to placemaking and community building. Tenants who feel that they are part of a community tend to stay longer. This in turn reduces the risk of rent voids, which have a negative impact on net operating income. Studies show that people who know one other person in a building are 75 per cent more likely to renew their tenancy. For people who know two other people, this rises to 90 per cent.”

The new breed of short- to mid-term masterlease rental companies are also getting involved, prompting a recent Wall Street Journal headline which said “In the Airbnb Era, Apartment Landlords Are the New Hoteliers”, referring to the likes of Sonder, Domio, and Lyric. Sonder, for example, has added Frits van Paasschen, former CEO and president of Starwood Hotels & Resorts, to its board of directors. Sonder, which raised $225 million in series D funding in 2019, leading to a valuation of nearly $1 billion, has gone from being viewed as an alternative to hotels, with its master-lease managed apartment rental offer, to a company that is happy to be considered as a player in the hotel space – as evidenced by the December 2019 signing of the One Eleven Wynwood Hotel by Sonder, in Miami. Owned by BH Investment Group, the property is scheduled for completion by summer 2021 and will be managed by Sonder.

Hotelisation has also attracted the attention of the investment community. Pictet Alternative Advisors (PAA) has closed its first direct real estate fund after reaching €700m in committed capital and has undertaken several major investments as a result. Zsolt Kohalmi, global head of real estate and co-CEO of PAA, said: “Real estate investing is undergoing a significant transformation due to changes in technology, sustainability goals, and the ‘hotelisation’ of real estate, which will provide value-add opportunities for active managers in the coming years.”

All of this is very gratifying to those working in the hotel space – sectors of the real estate market which tower over hospitality in terms of scale are looking to us to find better ways to run their properties, how fantastic!

But there is no room for complacency or self-congratulation. One of the key elements of the hotelisation phenomenon is the concept of space-as-a-service – providing products and services to a building’s end users, along with flexible spaces that can be used for a number of uses at different times of the day.

If we are being candid, it is only relatively recently that hotels have cottoned on to this idea, and historically many hotels have a poor record for it. How many dreary, yet large, provincial hotel restaurants still sit empty for 18 hours a day and serve mediocre food for the other six?

It has been the involvement of third-party specialist F&B operators and celebrity chefs which was largely responsible for the change in mindset among hoteliers, whereby their F&B outlets became hubs for their local communities and passing trade, rather than just reserved for guests.

Hotel lobbies have also often been a horribly inefficient use of space, and the move towards utilising them as welcoming and comfortable places for non-residents to work is a fairly recent one. We can probably give the original Hoxton Hotel in Shoreditch credit for this – it has been a favourite meeting place of mine for many years, as it offers an effortlessly flexible space for work or leisure, with neither tribe being made to feel uncomfortable by the other. It wasn’t that long ago that it was hard to find a hotel lobby to work in where one wasn’t made to feel slightly unwanted at best, and sent away with a flea in one’s ear by a haughty concierge at worst! The Hoxton ethos has since spread to many hotel operators – indeed the company has launched its own coworking brand Working From. Accor is aiming for its WOJO product to become the largest coworking brand in Europe by 2022. It aims to launch 1,200 new spaces over the next three years. “We have the assets (brands, spaces, teams), we have the services (restaurants, bars, meeting spaces) and we are open 24/7,” says Frank Gervais, CEO of Accor Europe. “By participating in WOJO’s ambitious development, we are optimizing the use of these assets and are creating value for our owners by being open to a new type of customer, i.e. coworkers.”

London-based companies AndCo, which recently had a successful crowd-funded capital raise, and Spacemize offer a passport-style option that allows business travellers, entrepreneurs, and corporate employees to work from luxury hotels and other venues on a cost-efficient, flexible basis. The companies offer space in hotels including W London and Mama Shelter London and are looking to roll out the model on a much larger scale.

So while it is flattering to watch other real estate classes trip over themselves to ‘hotelise’ their product, let’s not sit on our laurels and think that hotels have all the answers. The ‘officisation’ of hotels may not sound quite so sexy, but the blurring of product boundaries, and the flow of ideas and influences between various disciplines is very much a two-way street.

To find out the latest on the convergence of hospitality and real estate asset classes, don’t miss the inaugural Urban Living Festival:stay-live-work November 25-26, Tobacco Dock, London. Click here to find out more.

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