Frank Roseen, ESG leader at Aroundtown, explains: “We focus on innovation in real estate, and we want to think about how spaces are used in the future. We are already testing hologram staff in some of our hotels.”
Combining its proptech investment programme with Holoconnects hardware, in the shape of large, human-sized screens, the firm can deploy AI avatars which are fully live, remote staff members, part live and part programmed avatars, or fully automated holograms for tasks including check-in, reservations, queries and more.
Speaking of the firm’s ATechX platform, a programme to back start-ups and scale disruptive technologies, which Aroundtown launched with Fifth Wall and noa earlier this year, Kamaldeep Manaktala, CEO of Aroundtown’s hotel division, says: “ATechX enables us to implement new technologies that can revolutionise guest service in our hotels and automate buildings and workflows to improve operational efficiencies.
“Startups earn the opportunity to test their solutions across a large portfolio of hotels across Europe. Our strong partnerships with operators will provide startups meaningful real-world insights as they build must-have solutions.”
Staffing issues
Staff shortages – part of the industry’s Covid hangover – have lingered over the past three years as a major headache for hotel operators worldwide. In Japan, where acutely low immigration was exacerbated by closed borders during the pandemic, hoteliers have found it extremely difficult to manage resource-heavy five-star hotels, with most new openings in the last two years targeting business travel or tourism in the three-star space.
In Europe, while macroeconomic headwinds in the shape of high inflation and high interest rates are beginning to moderate, high labour costs have remained a challenging line on operator balance sheets. Wage inflation has proved one of the most stubborn components of Europe’s frothy economy, with Eurostat data showing that hourly labour costs rose by 4.7 percent in the euro area and by 5.2 percent in the EU in the second quarter of 2024, compared with the same quarter of the previous year.
David Kellett, managing director - head of alternative investments, Europe at Invesco Real Estate, doesn’t see the problem going away. “Inflation is embedded in the system,” he says. “Minimum wage inflation has gone up, so in some markets, labour is the biggest part of your cost base. If revenue is not growing faster than that, you are going to be losing out marginally.”
He understands why the industry is looking to technology, but warns it is not a magic bullet. “I think that AI is a part of the solution and is going to play a big role going forward,” he notes. “But we also have to make jobs in hospitality far more rewarding for people – luxury hotels will always require first class customer service.” There is opportunity in the budget space, however, he notes. “Some tasks, most likely in economy hotels, could well be taken over by robotics or AI, to make the value proposition more attractive to both customers and investors. The airlines have been through all this – minimising human touch points via technology. Hotels are still quite keen on lots of touch points, but customers don’t always care about that.”
Operational real estate
For investors that are new to hospitality, or newer in general to operational real estate, getting a grip on staffing issues is all part of learning the appropriate industry skill sets. “A lot of investors want exposure to operational real estate today, and if you do that then operational risk is included,” Kellett notes. “If you want to take on operational risk in hotels, you have to understand branding, revenue management, how to drive operational efficiencies – including driving alignment in contractual negotiations.”
While many investors that are newer to the sector might still not want to take on full management risks, hybrid leases, which include a revenue or profit-based portion of the lease agreement, can be “a great way of helping more core and core plus money to gain exposure to the sector, particularly in top cities in Europe where strong locations drive revenue growth”, Kellett adds.
James MacNamara, Global Head of Value-Add & Alternatives, Real Estate at Schroders Capital, has seen a similar sea-change in the way that core capital considers hospitality real estate. “While there is not a lot of core money at the moment for anything in the market, we have seen large pension funds looking at how they might increase their allocations to hotels,” he notes. “They are also considering residential but are sometimes put off by the political aspect – hotels don’t have this.”
While he notes that a lot of institutional investors wouldn’t have touched the sector pre-Covid because of concerns about operating risk, he suggests that they are being tempted by hybrid lease structures particularly when the investor has a manager who can “step in and manage the asset and operations if they need to”. He adds: “These kinds of lease models require far more mature conversations about improving income for both the owner and the operator, and suit much more of a partnership approach.”
Managing the cost base
Landlord and operator alignment aside, running profitable hotels increasingly has to take into account a broad number of cost factors, MacNamara adds. “Some businesses accept that they will have high staff turnover as they just pay minimum wage,” he says. “But I think the ecosystem as a whole needs to change. Hoteliers need to think about improving productivity rather than cutting wages; tech can be an enhancement, not a replacement.”
He thinks, that, post-Covid, “the industry has woken up a lot” in fine tuning its approach to staff and suppliers. “Food cost is another aspect – minimising waste and working more in partnership with suppliers and the local community,” he notes. “A stakeholder approach is vital, and a long-term perspective.”
By Isobel Lee
