The Future of the Hospitality Industry

Posted by Kris Lindahl on Wednesday, September 2nd, 2020 at 11:03am.

What's in Store for the Hospitality Industry?Even though many people have cut back on travel this summer, there are some who believe that stay-at-home vacations represent a continuing trend. In fact, the hospitality industry is gearing up for travelers as soon as worldwide restrictions become even a little less restrictive.

That's good news for commercial real estate and construction, in addition to those directly involved in hotel management, restaurant operation, and the airline, cruise and travel industries. The signs are all in place, and Americans seem only too ready to head off for new adventures—sooner rather than later.

Innovation and Creativity

There is a corresponding recognition that the hospitality industry will be forever changed. Post-COVID travel will look and feel different. Although some changes may be welcome, the extent of change may be greater than anyone would have imagined. Whether masks will be required for airline travel or not one year from now, or whether touchless hotel check ins and disposable restaurant menus become the new normal, the consensus is that travelers will adapt.

The more important question may be whether the hospitality industry itself can react to the new needs.

Jay Coldren, managing director of hospitality/eat+drink for Streetsense, notes that what was originally thought to be a short crisis followed by a quick return to somewhat-normal operations has morphed into a period of recovery that may require 12 to 18 months just to return to 2019 levels. In the short term, staying afloat is the goal, he says, with cash flow and creativity primary concerns.

Additionally, Coldren believes that hotel operators and restaurateurs must listen to their guests and then try to act on the feedback they receive as the economy begins to recover. He is hopeful that the industry as a whole can be flexible, creative and nimble enough to survive, with some important changes.

Coldren and others in the industry believe that innovation and a bit of "playfulness" may be antidotes to the mandates for distancing and safety protocols that may well characterize the hospitality industry in the future.

Sustainability, Logistics, and Technology

Just what does that future hold? For one thing, according to travelers as well as hospitality experts, there will be greater emphasis on sustainability. That was the case prior to the pandemic, but now sanitation may well be the new sustainability. Coldren insists that it's smart to show the public what is being done to keep things clean.

A second supposition is that planning and logistics of travel will be more extensive; quick getaways and spur-of-the-moment weekends may become less doable. And costs? The verdict is still out on that.

Finally, technology advances—particularly as they relate to automation and decreased personal contact —will play an important role. Will we see hotel room service delivery by robot? Touchless check-in is already a reality, and motel lobbies of the future may not be staffed by humans.

As a business that spans multiple service sectors, the hospitality industry is not only a major global employer, but it also contributes more than $1 trillion to the United States' economy alone. The travel hiatus has already sent ripples throughout all levels of business. Commercial real estate and construction have been affected, but in most areas, including the Twin Cities, plans for new hotels have not been scrapped.

Most agree that large city hotels with convention facilities and those near major airport hubs have been the hardest hit by the travel slowdown. Twin Cities occupancy rates have hovered around 15% to 20% since mid-March, according to published statistics, but in downtown Minneapolis, the rate is much lower, between 4% and 5%, based on numbers supplied by STR, a travel data firm. Rick Bertram, general manager of the Minneapolis Marriott City Center, noted that there were nights with only seven or eight rooms occupied in the 585-room hotel. He made the decision to close the doors in late April, but targeted an early July reopening, with updated decor as well as new cleaning protocols and travel guidance. Guests can now bypass the front desk and unlock room doors via smart phone.

What's in Store for the Future?

Despite continuing hotspots of infection in numerous U.S. states, at least one analyst, Michelle Meyer, head of U.S. Economics and BofA Global Research, believes we might have reached a turning point. She notes in an August 12 Economics of Reopening report that the number of states reporting a drop in new infections has increased from 24 to 39 in one week's time. She also notes that even though air travel is still down by a staggering 72% over last year, dining out rates increased for the fourth consecutive week, according to Open Table.

In terms of construction activity, even the recent devastating fire at an apartment/hotel construction site in downtown St. Paul brought a quick response and a vow to rebuild. Kaeding Management of Bloomington broke ground nearly a year ago, with Doran Cos. as the lead contractor on the $69 million project. Hotel construction plans nationally have been slowed by the pandemic, but a Kaeding spokesman confirmed that the company will proceed with plans to clean the site and resume construction. According to reports, the building was completely framed, with windows set, but its fire suppression systems had yet to be installed when the fire broke out. The investigation into its cause continues.

In another local development, the July 30 sale of the sixth-largest hotel in the Twin Cities was just announced at a per-room rate less than half of what was asked when the property was first offered for sale in 2015. The owner, Platinum Equity of Beverly Hills, California, initially marketed it for $55 million, or $97,000 per room, before lowering the asking price to $40 million. The just-confirmed sale of the 568-room hotel, the DoubleTree by Hilton Hotel Bloomington Minneapolis South, was to Vinayaka Hospitality, a suburban Chicago investor, at a price of $26 million. Platinum equity acquired the hotel for $20 million in 2011 and reportedly spent $12 million on refurbishment.

It's not a price trend that spurs confidence for the future, but there is still optimism that the hotel sector will rebound and return to the growth cycle that was established several years ago. What seems certain, though, as Coldren emphasizes, is that hotel operators and restaurateurs have adopted a "clear-eyed approach," and smart operators will not re-enter the market until they are sure they have the cash and determination to stay afloat for the next 12 to 18 months.

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