With approximately 25 years of industry experience, Knott’s work spans hospitality projects across North and Central America as well as the Caribbean.
What would you say are the most interesting/most significant hospitality trends you observed in 2023?
The largest discussion of 2023 has been around technology and operations, for example the engagement of self check-in. That is, streamlining hotel front desks to create a more efficient, lower overhead, operational experience. We’re increasingly seeing hotels now with web apps, which enable guests to check in virtually and completely bypass the front desk altogether. This service modification has an impact on the built environment – as it changes the spatial demands in the lobby, how many welcoming stations are required at the front desk, and more.
While this trend originated from a pandemic-era need to reduce human-to-human interaction, the reality is that self-check-in generates increasing profitability for hotel operators. Hotels can run things with less staff while continuing to charge the same room prices, making them inherently more profitable. This is especially important for the hospitality sector given the national labor shortage.
Decisions about automating logistics in hospitality properties ultimately impact the built environment of a facility, as well as its profitability and guest experience capabilities.
At the end of the day, hospitality is all about the human experience, so one challenge with the economic slow turn is managing how to leverage technological solutions and create pathways to profitability while still giving guests the human interactions that define the hospitality sector.
What trends are expected to see around hotel development in 2024? What hotel types would you say are the most popular?
Construction costs and interest rates are still high. Developers have to balance these economic challenges alongside controllable factors to reduce costs and maximize profitability. That may mean leaning into projects located with less-expensive labor and favorable business conditions.
In 2024, we expect the dip in new ground-up construction to continue, except in ultra-luxury projects where costs can be recouped more quickly. Revitalization projects and leveling-up properties to new brand standards will be on the rise, along with M&A activity.
Acquisitions and repositioning projects are not without risk, some of it more controllable than other factors. We understand what the soft costs are associated with a repositioning project, what’s required to meet brand standards, and can assess hard construction costs based on the area and the geography the project is in. But associated capital improvements are where a lot of the risks with infrastructure come up. What’s the true cost of effort? Is it a soft good versus hard good renovation? As we navigate this ever-changing world, it’s critical to make sure that you’re creating a streamlined project approach that provides predictable financial output.
Other hotel project types on the rise include: high-end, luxury hotels which draw high net worth travelers; franchise capital improvement projects across economy hospitality brands; and developments affiliated with cruises, which are drawing more post-pandemic travelers by the day. We’re particularly excited about the opportunity to provide more portfolio services for design of the extended stay or economy brands, as these groups are rolling new branded properties out 10 or 15 at a time, which requires a different skill set and attention to detail from a project management standpoint.
In our minds, some areas of the hospitality sector are staying still, while others are still moving, and actually aggressively moving ahead. Across that spectrum, we are positioning ourselves to make sure our services are extended to manage that risk for our clients.
Are there any property types that developers seem to be moving away from?
We see some developers shelving ground up projects, and looking for more value add projects. We expect investor appetite to lean more towards acquiring and pivoting existing properties, as opposed to entirely new developments. Demand in the new construction market is shrinking, though developers can manage costs by leaning into geographies with less-expensive labor and more business-friendly environments.
Why do you think hotel redevelopment/revitalization projects have gained in popularity for developers?
There was a significant amount of deferred or delayed renovation work during the pandemic. As of today, hotels have been able to recapture lost revenue from the peak pandemic era, and those renovation projects are now finally taking off.
Another force for increased interest in revitalization projects is the rise in hospitality mergers and acquisitions. As owners and operators consider those costly, deferred construction projects that are needed to upkeep and improve their properties, they’re asking themselves, ‘Do I want to pay for this, or would I rather sell it and have someone else do the heavy lifting?’ We have seen, a wave of these transactions over the last 12 months, and I expect we will continue to see this in 2024, with a majority of these projects requiring some type of property improvement, or brand conversion.
What development challenges has the hospitality market faced over 2023?
Broadly, the tumultuous economic environment and pressures of 2023 have been key challenges for the hospitality market. From the interest rate hikes to the national labor shortage, the hospitality market has had to navigate the same murky waters, as has the economy at large.
Do you foresee any of these challenges continuing into the new year?
In the recent past, when construction activity was high, the cost of construction was high. Now, the cost of construction is higher yet, at least partially due to the higher interest rates and labor shortages of 2023. Recent news from the Fed indicates they will stall interest rate increases, or even reduce interest rates in 2024; we will have to wait and see how this impacts construction activity and prices.
How did 2023 end for you and your firm?
2023 was successful for PMA Hospitality, with Hospitality quickly becoming one of the larger sectors for the firm. In 2023, the PMA Hospitality practice increased revenue 100%, doubling in size and becoming one of the leading sectors for the firm. I don’t know that we’ll have the same acceleration into 2024, but we expect to stay on track for our growth trajectory overall. We’re looking forward to what the year will bring.
Based on current market trends, what would you say is going to define the hotel industry in 2024?
As I’ve said, I am expecting to see a lot of M&A activity in the coming years, with a positive mood shift away from new development. Cash-rich equities and REITs have the opportunity to buy not just one or two available properties – they now have the opportunity to acquire whole portfolios, with 10, 15, 20 or 50 properties at a time, which would strategically position acquirers with higher room counts in one sharp move.
Anything else you would like to add that we have not already discussed?
Hospitality is a very inventive and ever-changing sector, and it will continue to evolve and rise to the challenges of the new year. At Project Management Advisors, Inc., we’re going to continue to make sure that we’re on the leading edge of what those challenges are, how to effectively manage risk and how to make sure that we can add value to our clients’ projects in the process.
