“We’re seeing more and more blended spaces. The last few years have illustrated the need to be flexible,” says Richard Dawes, UK and pan European director, hotel capital markets at Savills as he notes that a blending of hospitality with other real estate uses helps protect the value and the life of the asset.
Creating an ecosystem
This merging of traditional hotel products with others like branded residences, co-living and co-working is rising. Developers like Finamas and CEPAC, Rockbridge and Edwards with their Columbus North Market mixed use development as well as operators such as Zoku and The Social Hub are leading the charge, creating properties that cater to a broad range of needs for today’s mobile, flexible and experience-driven consumer. These projects are not just about a place to sleep or work; they’re about offering an entire ecosystem that supports the modern way of living.
Adela Cristea, chief development officer UK, Ireland & Nordics at Radisson Hotel Group emphasises the importance of providing not just accommodation, but a full experience. “The tourist nowadays is not staying in a standard room eating in a standard restaurant anymore. People are looking for experiences. They want activities, and to be in a place where they can stay in the hotel, visit a museum, catch a concert, and eat at multiple restaurants within the same development, all without having to leave the premises.”
This concept is becoming central to many large-scale developments. For example, stadia developments and destinations in gateway cities are incorporating hotels, residential spaces, retail, food and beverage and entertainment venues, building more leisure experiential offerings to create more footfall and leisure demand.
Dawes cites examples like the Ruby Hotel in Stuttgart and The Post in Rotterdam, which successfully combine hospitality with traditional retail destinations, creating a diverse and appealing offering.
Money talks
The financial backing for such projects is increasingly being driven by institutional investors, traditionally hesitant about mixed-use developments.
Dawes notes: “Historically, traditional capital markets and pension funds wanted sole-use assets because they had an allocation to retail or allocation to office and hotel and too much of a blended piece of real estate was a bit difficult to apportion within portfolios and take account of different risk in the different segments.”
However, he notes that as these portfolios get larger and the demand for more flexible, multi-use spaces rises, there has been a shift and investors are becoming more comfortable with blended real estate, particularly as the data supporting these investments continues to grow.
“The advisory community is getting more cognisant, aware and able to evaluate these types of schemes. There's more evidence and more data to support that analysis and underwriting.”
He adds: “The banks are getting more familiar and more confident with the product type, and the brands are equally getting much more confident with expanding their reach and the product offer in different markets. Looking at this across the board of developers, operators, investors, financiers, everybody's getting more comfortable based on the availability of more data and evidence.”
Cristea points out that large-scale developments are becoming increasingly attractive to long-term investors who are/have to be in it for the long-haul, which is the case especially with stadia projects which Radisson is involved with.
“They would not sell the stadium or the hotel which is actually integrated in the stadium not only because of the fact that you can’t physically split it but also because all the components of the mixed-use have to be successful for the destination to be successful.”
This evolution in investment strategy is backed by the need for flexibility in the face of market cycles and consumer demand changes. The key benefit of mixed-use spaces is their ability to flex across different uses, whether short-term stays, co-working, or longer-term accommodation, with this adaptability helping to strengthen the bottom line.
“Accommodation can flex from short stay to long stay, and amenities like co-working spaces, gyms, and cinema rooms can be adjusted to meet demand. It’s about future-proofing the investment,” he adds.
Challenges
But there are challenges, one being in in operational management. As mixed-use developments grow in popularity, operators must adapt to managing an array of functions within a single property. The key to success is ensuring that the operator has the right expertise in all areas, whether that’s running a hotel, co-working space, or managing retail operations.
“It’s about making sure they have the right teams to deliver the appropriate cash flows within these different spaces and making sure there’s partnership with either local experts or international experts, but on a very niche basis to deliver an optimal result for these different amenity offers that are slightly less traditional or less familiar to a hotelier.”
Looking ahead, Dawes stresses that these projects are not just about capitalising on current trends but about future-proofing investments in an uncertain and dynamic market.
“It all comes down to liquidity and protecting your investment. The last few years have shown us that you need to be flexible and able to adjust your business models. So if you have more space within your real estate that you can flex according to market dynamics and customer demand changes, that surely protects your investment.”
While he acknowledges the challenges of cost and capital expenditure, he points out the risk of having an asset purely dedicated to just one use. “You may be very restricted in terms of what you can do with that asset moving forward which might hamper valuation or liquidity.”
Despite the challenges, it’s clear this is exciting opportunity for the hotel sector, particularly in terms of incorporating new amenities and services traditionally outside the scope of hoteliers.
By Ifeoluwa Taiwo
