Hello, Again: What's Next for Hotels
July 13, 2021 37 Minute Listen
I'm Spencer Levy and this is The Weekly Take. Hope you had a terrific July 4th holiday. Did you go anywhere for the long weekend? Have you made any plans for a road trip this summer? I asked because travel plans are what we're here to discuss. On this episode, we check into hotels and this hard-hit sector’s trip from the worldwide lockdowns of the pandemic to a season of recovery.
There's a desire and demand for travel and it will evolve and change from what it was. But it's definitely going to come back. And this is an industry that continues to show how resilient it is over time.
That's Keith Barr, the CEO of IHG Hotels and Resorts in London. IHG has a portfolio of 16 brands across a range of property types and price points, a global total of nearly 6,000 hotels with 900,000 rooms and even more in its development pipeline.
Sometimes when you take your revenue and your cost bases back down to zero, you're able to build things back incrementally and make smart decisions.
And that's Rachael Rothman CBRE’s Head of Hotels Research and Data Analytics. Rachael has spent her decades-long career in travel and hospitalit, from hotels to cruises, gaming and more. And she now leads a team with diverse experience and empirical expertise.
Our hotel guests and I will talk about hotels around the world and the signs they see for sector-wide recovery. We'll look at industry-wide losses across markets, where investment is heading and changes in how people are traveling. We'll also take stock of loyalty programs and amenities. Will we see a return to Muffin Mountain? Has the demise of business travel been greatly exaggerated? We'll ask those questions and a lot more.
Coming up: to stay in the hotel sector. That's right now on The Weekly Take.
Welcome to The Weekly Take. Before we get into the nitty gritty of hotels and who you are and what you do, I should note that each one of us is a proud Cornell graduate. And we decided not to talk about Cornell for the entire episode. But now that we've got the most important part out of the way, let's start with the big picture and then we'll get a little bit more into the nitty gritty. The last year's been tough. It's finally getting better. Keith, tell us how IHG was able to manage its way through the COVID crisis.
Yeah, I mean, it was an existential crisis, I think, for the hospitality, travel and tourism industry. You know, when we look at, quote, stress testing your business, we always look back at what happened after 9/11, what happened after the financial crisis. And I don't think everyone ever stress tested their business to see basically travel stop and some markets being, you know, 95 percent down in revenue year over year for months. It was a challenging time.
You know, I'm incredibly proud of the team, though, in terms of how they reacted to the crisis. And the way we talked about it was we got stakeholders, we got customers, we got colleagues, we've got owners, and we've got governments around the world. You know, through the lens of time, how do we make sure they look at us, look at IHG and said they did the right thing. So how do you look after your customers and giving them flexible cancelation policies and knowing that it was safe to travel and how to look after your colleagues and making sure that we're giving them the tools they needed to operate the hotel safely. Working with our owners and helping them get through this, how they manage their cash flow. And then thinking about—to how can we help governments, whether that's being quarantine hotels or looking after frontline responders.
And so it was tough, but we actually exited a better company than we entered it. So we’re at the beginning phases of the recovery. But there's a light at the end of the tunnel. No one ever knew how long that tunnel was going to be. And it does feel like we're getting closer to that light now.
Rachael, what's your perspective on what was a very difficult year?
Firstly, let me just say that I never thought when I started in the industry, whatever, 30 something years ago, that you could have the potential to have an industry go through such strong cycles every seven or eight years, right? No one said to me, hey, this is a career path that’s going to go up and down, boom-bust every business cycle. Like, we're the most cyclical out there.
But I think that Keith brings up a great point, which is that coming out of each and every cycle, the industry has become more and more profitable. They found ways to become more and more efficient. And sometimes when you take your revenue and your cost bases back down to zero, you're able to build things back incrementally and make smart decisions about where you want to layer on your talent, where you want to invest your capital.
And so we've seen a history of cyclical margin expansion. Your margins go up more in the up cycle and they go down less than the down cycle. So operators and owners are learning how to better allocate their capital. And in a way, cycles are making us smarter and more efficient. So painful, but smarter.
So Keith let's talk about the business now. In general terms, what is leading the charge out of the crisis and what's lagging?
Yeah, it was real interesting to understand travel during a global pandemic. Where was it going to take place and where was it going to recover? And there were some surprises to us. Our extended stay portfolio was running in the midst 60 percent occupancy in the United States during the pandemic and our mainstream portfolio, the Holiday Inn Expresses of the world running in the 40 percent.
And I was like, who's staying in our hotels? Who's traveling? And you realize there is a team of repairmen working on an industrial plant and spending 30 days. You can't do that over Zoom. You've got to go to the plant to do the work. It was frontline workers. So it was amazing to see the resilience of that business travel—let's call that in the mainstream—and that carried over into economy as well. So we don't play an economy, but the economy was quite robust. I'm sure Rachael can talk about that.
And that's kind of what got us through it, right. So you saw groups meeting hotels pretty much being empty or closed, resorts pretty much being closed. Then as things began to recover, I say anything associated with a resort by a lake, by a mountain, by a beach in the Sun Belt had demand greater than probably even 2019 in some markets and pricing power, too, and just showed kind of the lack of price sensitivity, particularly in luxury, too.
I mean, when we opened up a luxury resorts in those destinations, surge in demand, huge ability to price, too. And so it really was a barbell. Kind of the top in the bottom did exceptionally well. Now, with the recovery now we're seeing things generally come back to. But it's going to be a multi-year recovery because it will take time for corporate travel to get back to the level that it was before for groups and conventions to get rebooked. But you can just see there's a desire and demand for travel and it will evolve and change from what it was. But it's definitely going to come back. And this is an industry that continues to show how resilient it is over time.
So we agree. In the data, we see strength in the luxury segment. And obviously that was the one segment where they were able to maintain complete rate integrity, of course, at the expense of occupancy and strength in the lower price points as well. The one thing that I think that makes this cycle different, though, is the demand did not evaporate, right? That there were structural impediments put in place by either health concerns or government or travel restrictions.
But the actual desire to travel was not limited. And if you compare that to the global financial crisis, when maybe the individual pocketbooks suffered or after 9/11 when people were hesitant about traveling, just as Keith said, as soon as you opened up your local resort or a drive-to destination, there were people willing and ready and able to spend, and the demand to travel is still there. And I think that's one of the things that makes this cycle completely different from the last two.
Yeah, without question. I mean, I'm talking to owners around the world going, we've never seen demand like this before and which is give them great pricing power and integrity as well, too. And so consumers want to travel. And everyone asked me about the recovery. It's a direct correlation to vaccines and government restrictions and travel orders. And so as those lift, travel will come back.
On the flip side, though, we're going to see some things come back every now and then on the negative. Right? So you're seeing some markets now where they're having some flare ups in certain parts of the world where travel is being restricted again. And so we're seeing occupancies fall. But even the other day, I mean, in Spain—I was just over there in Spain the other day. And Spain went from being amber to green for Ibiza, the island, and all of a sudden one of our hotels had a million dollars of revenue booked in one day. I mean, it's incredible.
So why are you confident about this industry for the long term? It's like, you know, people are out there and business travel wants to come back as well to mean it's really people want to go out there and see customers. And people have been talking about the death of business travel like it's never going to come back.
And I was talking to Chris Nassetta the other day at a meeting from Hilton. And he goes, you know what? People are going to say that until a competitor flies to see a customer and lands the big deal and they didn't get on a plane and then they're going to get on a plane. And there's a lot of truth in that, too. And so business travel will come back. Leisure traveler’s already there. We just have to make sure we people vaccinated and we get the world opened up.
We have an expression in the brokerage side of the business, out of the room, out of the deal. And so I think it speaks to that in a lot of ways. But Rachael let's take it a little bit deeper into that. To be a little personal, back in 2013 I traveled 175 thousand miles. So, I am Exhibit A of the business traveler. And I've only traveled maybe four or five times this year, though I am getting to travel more. Do you see any structural shifts, good or bad, coming out of the pandemic for the hotel industry?
So let's just say here a few key debates, which I can't conclude one way or another, but, you know, some food for thought around the topic. Number one could be the potential for geographic shifts, right? If I was going to plan a conference or a convention, would I want to do that in the most expensive market—where it's difficult for me to fly my employees there, they have to spend a lot in food and beverage, it's difficult to take taxis around—or would I want to put a convention or conference in a market where I know I can land a lowcost plane in sunshine 365 days a year and food and beverage and hotel rooms are relatively inexpensive?
So we could see some geographic shifts from the northern high-tax, high-labor, high-cost-ofdoing- business markets to lower-cost-of-business-doing markets. And the other thing that I would say is that airline pricing has recovered fully. And if we think about a short business trip and the relative expense of the airline seat relative to the hotel room, you'll see that the preponderance of the cost is actually in the airline seat. And so I think that there's a debate about whether or not people will make three trips across the U.S. and spend no nights in a hotel or if they will make one trip across the U.S. and stay two nights in a hotel and do three pieces of business at once.
And then I think the third factor you have to layer on is corporate travel budgets. And as much as I would like to say that those are benchmarked against 2019, they're not. They're always benchmarked against the prior year. And so, we will not see corporate travel budgets just rubber-band back to where they had been. They're going to move higher in a step-function fashion benchmarked against 2021, right? When you go to pitch your 2022 budget, it's going to be based on 2021 and you're going to have to make a strong ROI case about why business travel or why specific trips or events are necessary in order to get approval.
Rachael, I just want to add a couple of data points there, too. And these are more anecdotal than they are data, I should say, because I would agree with what you said. I acknowledge the fact that I'm not going to get on the plane from London to New York for three-hour meeting and fly back the next day. And it's bad for me and it's bad for the environment. And I know now we can do these things through technology. And so I think those sorts of trips are going to go away. And I'll give you two other anecdotes. I was talking to two basically board level leadership roles and other big multinational companies. And I was struck by what one of them said. He goes, I will not do as many plane trips, but I will have as many hotel nights as I previously had. And I said, well, why do you say that?
Because I used to fly from London down to Australia, be there for two days and then come back. And then I might be in Tokyo two weeks later, I'm going to bundle my travel very differently so I'll have fewer flights, but probably the same number of hotel stays. And then there's this desire to get groups and meetings, too. I was talking to some of the pharma companies and they're already getting some big group events scheduled because they want to do product launches—they have to get their people together. So I agree with you that corporate budgets won't be back overnight. They will build back, but they will probably build back faster than inflation. It’s not going to be there is going to take that back—I think they will be step changing.
Oh, yeah, of course. I couldn't agree more. I did not mean to give the impression that it would just be, you know, sort of CPI growth. I'm just saying we can't go from 2021’s bottom or 2020—I guess the corporate budget bottom would be 2021 because 2020 was budgeted to be good—all the way right back, right? You're going to have to layered on 10, 20 percent increases. It will certainly depend on the size of your overall budget. But yeah.
And I think the ESG agenda will drive more changes to people's flight patterns and decisions they make on airlines than it will on hotel stays because of the just the level of carbon that's associated with it.
Let's go to that topic, which I was going to touch, about how ESG is impacting you. The investors in your business are saying, look, we want you to be more ESG friendly, but the definition of being ESG friendly is also changing. It's no longer just having a LEED or an Energy Star on your building. It has to do with measuring these things. So it will start with you, Keith. Let's talk about how IHG approaches the ESG question.
Yeah, I mean, it's a huge part of what we focus on, and it's actually one of the four pillars of our strategy. In the past, I think ESG was compliance. You had to have it. It was a tick-thebox exercise from many, many companies. I think it's in the fabric of a company's strategy today to be successful—from a shareholder perspective, from an investor perspective and from a consumer perspective—that you've got to be thinking about this and your impact on communities, your impact on the environment, too.
So we have a computer technology platform that we developed years ago which we’re actually re-platforming now called Green Engage. It's in all of our hotels around the world. It's a brand standard, it lets us track energy waste and water consumption … really understanding what our carbon footprint is. It was developed based upon a lot of the LEED certification data at the time and understanding how do we then positively impact the performance of hotels? So moving from incandescents to LEDs, putting in new technologies, how you allocate rooms. So, really putting best practice and processes in place to do it.
And now we're having a regular report out of this, too. So this has gone from just a do you have something in your hotels to what are you specifically doing? What's the impact? You know, we've signed up to science-based targets right now, and we have a huge initiative over the next 10 years to fundamentally lower our carbon footprint on a growing business, which is not easy to do. We recognize we're going to have to have zero to low carbon prototype hotels from mainstream brands within five years to be able to do that. We're going to have to be able to retrofit the existing estate to materially lower its energy consumption and also help support renewable energies, too.
So it amazes me, I mean, literally in the past, I would sit down with one of our major shareholders and last five minutes the conversation was ESG. Now we're having separate one-or two-hour meeting just on this topic. And it's going specifically into the data I'm understanding because there's a lot of money that's going to invest in green companies. But it has to be really clear what you're doing and that it's being certified and it's being validated externally.
Spencer Levy Let me dig into one point you made there for a moment, Keith, if I could. You said sciencebased targets. And so when I speak to my investors on the outside of the hotel sector, a lot of them are following what's known as the U.N. principles on responsible investing, and they're using those measurement. Is that is that what you meant by science-based targets?
You actually have to have a third-party certification based upon the UN standards, which says we're going to put these actions in place to be able to lower our carbon footprint, to keep us below two degrees or below 1.5 degrees and so forth. So it's using the UN certification and it has to be externally validated, too.
The one thing, though, that people have asked me, when are you going to be carbon zero? And a lot of companies are signing up to that, right? They're saying by 2050 we're going to be zero carbon or 2040. It's hard to do. We're focused on how do we get there eventually. But until we have a plan, I'm not going to make that commitment publicly because I've seen a lot of people make it and I've asked them, how are you going to do it? We're not quite sure yet, you know, but we figure we'll figure it out. And so I think it's a little bit disingenuous right now if you to put that out there, because you realize it's going to be the next chief executive or the next chief executive's problem to sort it out. And so I don't want to leave that for my successors.
Great job by Keith explaining all of the environmental aspects of it. But let's just keep in mind that ESG also—you know, the S pillar, right—social is very important to the investors as well and to community as well. And it also makes companies better. Right? There's data and research, academic and everyday business research, that suggests that more diverse organizations actually have better financial performance.
And I think we can see the success of CBRE, right? Has tremendous diversity, equity and inclusion initiatives and has performed tremendously well. And I just would say that the hotel industry is uniquely positioned to perform better than almost any other industry in that category. Right? I would be hard pressed to find another industry where the staff or the associates and the management on site is any more diverse than the hotel industry. I mean, I came up, you know, from being a coat-check girl, front-desk clerk, short order cook, housekeeper—like this is an industry with tremendous diversity and tremendous opportunity for people to see growth in their career over a lifetime. Where somebody can come in is an entry-level worker and wind up as an executive of a public company or a researcher or a general manager.
And so I think our industry has a great opportunity to attract, train and retain a diverse universe of talent. And I think that we should capitalize on that opportunity because we're well positioned. And investors want it right. The companies want the associates want it. Investors want it. It's a win-win-win.
Yeah, absolutely. I think, you know, kind of the E was already moving right. And accelerating every single year. The step change in the last 24 months and it was recognized in the role of companies to have a positive impact on society and an expectation—you know, as a chief executive, my team expects me to put a stake in the ground on big issues and making sure we're doing the right things. One in 10 jobs globally is hospitality, travel and tourism. And it does a wide range of socio economic and educational backgrounds can be here, too. So it's exciting. And also to attract the right talent. People want to see that working for a company who really walks the talk in the space and really fundamentally believes in it. And you need to have the best talent to win going forward too. So, it's doing the right thing, but also to succeed in business, you have to do it as well.
Well, I think this talent and jobs brings up something that actually was my criminal law professor at Harvard told me that all of life is a seamless web. Everything is connected somehow. And the connection I see in the hospitality industry is food and beverage and labor. And the term I heard—I learned this term, I stole from the Financial Times, so I'm giving credit to it—was the Muffin Mountain. And the Muffin Mountain is what you go into every hotel in the morning and you see this mountain of muffins, mountain of eggs, of food. And I think, why do they put so much food out there? Nobody's going to eat all that. Well, it's cheaper than labor. And so this brings up the issue of the availability of labor. Rachael, how big of an issue is the availability of labor today?
I mean, it's the issue, right? I think if you look at the data, you'll see that on average, a hotel is looking to fill 25 FTE or full-time equivalent employees. That's on average per hotel currently. And I think that, you know, it impacts service levels, but it impacts their ability to fill the hotel. And it's just a huge issue. Currently, I think we have to remind potential associates and colleagues that as the founder of Ritz Carlton said, you know, we are ladies and gentlemen serving ladies and gentlemen—this is not just a job. This is a job of service and a potential long-term career where you bring value to the guests and to the experience. And we want to take care of you and bring value to you and your life and your community as well.
To the extent that we can remind potential employees that we are an employer and an industry of choice, that we provide experiences, that we're here to excite and delight our guests, I think we will have a better job attracting the right talent over just showcasing a role as a, you know, 18 dollars an hour or X dollars an hour during this time period and that time period. I think we won't win if that's our pitch—here, come make, you know, two dollars an hour more. I think those individuals won't give the guests the quality of service that that we need to make companies successful.
Yeah, I mean, it is an issue that we're all talking about right now. And I think partially because I say the industry was surprised, but the level of demand and the pace at which it came back outstripped the staffing in this industry. And then we're quickly trying to restaff this industry up. And it is challenging. I mean, I'm hearing about people not opening bars, people not opening restaurants, people keeping floors of guest rooms closed because they can't staff up.
And so we're very, very focused on it. We've actually done in the United States—I think we've done eight webinars for our franchise community sharing all of our best hiring practices, our training tools. We're staffing up in terms of recruiting function as well to really trying to support our owners to help staff up the hotels and train up the new staff as well too. On the flip side, we're also having to rethink through some of the service delivery and saying other ways in this lower staffed environment, we can still have a great experience. And how do we need to change and evolve and what's temporary and what is permanent as well, too. And those are the great debates that are going on.
Well, when I brought up the example of the Muffin Mountain at the breakfasts, it brings up an example of labor is scarce, here is one of our solutions. Another solution is automation. And automation has to do with your reservation system or otherwise. Rachael, can you comment on how the industry has evolved and how it might continue to evolve through automation or otherwise if there are labor shortages?
Well, the first thing I would say is we have better data this cycle than we've had in any prior cycle, right? The yield management systems are better than they've ever been. There's just tons of data—how to maximize profits based on length of stay, what a total spend per guest is, how to mix your segments, how to use the appropriate channel. You should have an opportunity to study ways of maximizing your hotel's topline.
Then as you look at the cost structure we've obviously seen, key-asked check in or check in on your phone, which we didn't have during the global financial crisis. You can check into your room using your phone. We're now seeing the exploration instead of the unlimited breakfast that you're referencing to like hot service kiosks where people might get something grab-and-go.
So we're definitely seeing a lot of technology and automation. I think for sure you'll see elimination of some positions in the front desk or in concierge or maybe those positions melding into broader guest service where they're also providing some food and beverage— coffee, breakfast bar, that type of thing. I think as we move beyond that, though, it's really going to be about maximizing revenues and profits, not necessarily just about cutting costs. Or other things that you can do to remove friction in revenues, I think is going to be a huge area of growth for the hotel industry. And we've seen it in casinos and cruise lines, yeah.
I like the word that Rachael used. I use the word friction all the time. How do you remove friction and use technology to do that? And that way you can reduce costs, but improve the customer experience or improve the owner experience, too. And so I think you're going to see this industry continue to accelerate its utilization of digital technology to deliver a better experience and more profit firms, too.
And so you’ve got mobile check in and you've got mobile check out, ordering from our phones—taking cost out. You know, because of the pandemic, we took a bunch of things out of the room that were always in the room. And now we're asking ourselves why were they ever in the room in the first place? I was at one of our hotels the other day, it's on QR code now. So anything you wanted is now available on your phone. But we're not putting that piece of collateral in there that is cost to an owner that's actually costly to the environment as well, too.
And so I think what we did throughout the last year and a bit was accelerate our focus on utilization of technology, reevaluating the customer journey and the owner journey, and where are the points of friction? How can we make it easier to get things done? And it's really paying off dividends. And it's going to vary around the world. I mean, so it's going to vary by market segment—it's going to be a more efficient industry coming out of this where you find improving margin in the hotels and in the big companies as revenues come back. And that's good for everyone and it's good for investment in this industry. And you'll see it accelerate.
It's been causing us to have to raise our game and we'll be collectively spending more on technology than ever before because customers are demanding it.
Well, you should know the first thing I look for when I enter a hotel room are the outlets where I can plug my stuff in. And I know that they've now moved them up on the desk. But you should know that my near and dear recently departed grandma Beth used to look for the little bars of soap because I go to our apartment and I find all these little bars of soap from the Holiday Inn and these other places, though she's not around anymore. So that's one cost savings you’ll have.
I bet she probably has some of the Holiday Inn towels.
Well, that's a whole other matter.
But let me talk about customer retention. There's loyalty programs. You have loyalty programs. You had a year gap year where some of your best customers didn't show up. How did you handle it?
I think communication was critical and that was the biggest thing, right?. And what we learned both with our customers and our colleagues, even our owners, was you can't communicate enough as you're going through a crisis. Because in the absence of information, people assume the worst and they either assume you're not doing something or you're doing something that’s not going to help them. So it was get out there and talk about what you're doing. So, no-worry travel. Book a reservation … if you cancel, don't worry about it. You're not going to get charged.
Loyalty points. We're going to extend your loyalty points for another year even though you haven’t had activity. My team—literally it was March of last year going there's no playbook for this. And so you got to take a step back and say, what do we want customers saying about us? What do we want owners saying about us? What do we want our colleagues saying about us. And with customers the saying is you had my back at the end of the day. You know, you help me cancel my reservation, you got to get my money back. You extended my loyalty points, you extended my status. You felt like you were a partner with me. And that engenders loyalty.
On the flip side, if you don't do that, they're going to go, you weren't there for me. You didn't have my back. And I'm going to go over here now too and so that's what I tried to preach to my entire organization through last year, is we want people saying at the end of the day, IHG the right thing to the best of their ability. And all the changes they made weren't perfect. But that’s what you want, because that's how you build reputation and that's how you kind of strengthen your relationship.
I think what Keith's saying is the general approach that they took, right? And I don't want to make that sound so easy because I'm also an elite member and many of the airline programs. And let me tell you, they did not give me my full money back. The industry was fairly consistent in its approach—the hotel industry. I don't want to make it sound like that was an easy task because we definitely seen other industries not make it so seamless.
Let's talk about another issue that the hotel industry confronted during the crisis. And let’s talk about how long it lasts. On one of our prior shows on The Weekly Take, we talked about New York City losing 20 to 25,000 hotel rooms permanently. And I guess that story could be told in some other big cities as well. Were we overstating the case or do we think there's going to be a permanent loss of hotel rooms in some of the major markets that are both international travel and mass transit dependent? Keith, what's your perspective?
You know, I heard those numbers being floated in the early days of the pandemic, and I think they may be overblown. I mean, we're not seeing it happen in our state for the most part. I mean we have a couple of hotels here and there, but it's not the ones I'm seeing from an industry level, ones that were already probably structurally impaired, pre-pandemic, and the pandemic has exacerbated it. You kind looked at it going, is that the highest and best use of that real estate for that asset? Does this hotel work as it's currently? And if the answer was it was on the bubble before the pandemic, it blew up effectively during the pandemic.
But lenders are being pretty flexible right now. They're basically saying, you know, we can see the recovery. And so, you know, I've had more people come to me saying I've got 500 million dollars or a billion-dollar fund. I'm spending up to go out and find distressed assets. And they’re going where are they? Well, there's not nearly as much distress as everyone thought there was going to be.
Now as government support pulls back around the world when furloughs begin going away and business tax rate subsidies go away and things like that you may see some more distress come into the system. But I don't think it's going to be of the epic level that people were projecting at one point. And I think most lenders are being quite thoughtful about it.
But again, hotels that didn't work before the pandemic, you know, don't work now and are even more challenged. But I don't think it's going to be, again, this epic departure in all the urban centers in the world.
What we're really talking about here is supply-demand. I think you have to bring up the question of Airbnb as well as a new supply source as well. So I'd love to get your total picture on the supply story post pandemic. Rachael?
Yeah. So firstly, let me say that I was a fourth-generation Manhattanite. So anything that sounds negative about New York City, you know, touches me personally. That said, I think part of the future of the urban hotel industry, particularly in these high-cost-of-business markets, will be dependent on the policies and procedures that the local and state governments put into place.
And I know that New York City's going through an election. And so depending on how that tax base and those decisions come out, it will influence what hotels are viable and what are not. Additionally, New York has been a market with tremendous supply growth. So in a way, it would make sense that you might have hotels close, right? It's a refreshing of the supply base. As we used to say in the hotel industry, it's not overbuilt it's under bulldozed. That's what they taught us in hotel school.
And so if you look at stock that's 40, 50, 60 years old, it makes sense that it becomes refreshed. And as Keith said, the pandemic might have been the catalyst for that.
In terms of Airbnb or short-term rental supply, there has been a preponderance of that. Major urban markets mostly have put limitations on rentals under 30 days, as it has been shown academically and in research to raise the real-estate cost basis of the local markets. I think the hotel industry has been advocating for fair-and-just taxation of short-term rentals. And I personally—and I'm sure some governments—would like to see the same safety standards put in place in short-term rentals. So not just a question of taxation, but fire, life, safety. Right” What measures are put in place to protect the people that stay in those units in much the same way that the hotel industry does?
I think that it is something to contend with and to be aware of. And the hotel industry is going to have to do things to stay attractive to multigenerational or larger groups. And I think we're starting to see some of those policies changed with guaranteed connecting rooms and more advertising to families. And you're even seeing some of the big brands venture into home and villa rentals, short-term rentals or alliances with those types of programs. But I think they are here to stay and it is something that the industry needs to be aware of.
Keith Barr Yeah, I think, Rachael, that short-term hotel and home rental accommodations is here to stay. It was there, it was here before Airbnb. Airbnb has effectively helped consolidate the industry and make it easier for consumers to access it. And I think for certain state occasions, it's the right decision. It should be well regulated consistently and it shouldn't be covert.
Because the negative impact it has on communities is pretty significant when it's not handled properly by local governments. When you bought that apartment in New York or that flat in London for you and your family to live in, you didn't expect it to be the one next to you to be turned into a weekend rental for people to come on for their bachelor parties or, you know, their graduation event. And you're seeing huge parts of destinations, places like Venice, for example, where all the locals are being pushed out because of short-term accommodations. That's not what should happen to.
So I think there's going to be more and more societal pushback to say it's the right thing to do, to have home rentals done properly, done consistently and regulated. And we believe that's fine. It’s just when it’s not being regulated, and when you're creating hotels within apartment buildings that were never intended to be there, that's just not the right thing to do.
So take out our crystal ball or what I like to call a reverse crystal ball. Looking back in from 2025, is the hotel industry back to pre-pandemic levels than overall? Past it? What are the major changes we're going to see in the next four years? Starting with you, Rachael.
I'm going to say on average it's back, but you have some markets doing a lot better than they had done previously and you have other markets still struggling to recover. And what's going to separate those is probably whether or not those hotels that operate in high-cost markets are able to find sufficient efficiencies to charge a price that guests are willing to pay to come there. That they can still operate profitably even though they have a higher cost structure.
Keith, what's your point of view in 2025 looking back?
Yeah, very similar to Rachael, I think some markets will be at or above, some will be lagging. But generally the industry will be back by 2025. I mean, the bulls are saying the industry in total is back by ‘23. The bears are 2025. And so it's probably somewhere in the middle there, too.
Again you seeing some markets today when—whether it's vaccines, whether it's travel corridors open up—demand comes back. And this industry is incredibly resilient and will continue to innovate and find new ways of making sure that they can continue to grow, too. So I think in 2025 we'll be sitting here going, we got through the toughest period of time in this industry's history, have come out of it better. And the thing is, the big hotel companies—that’s the IHGs, the Hiltons, the Marriotts of the world—are just going to keep getting bigger. When you think about the top three of us today, have think 17 percent of the existing hotel supply, but we have 43 percent of the global pipeline.
And so the big hotel companies with the broad portfolio brands ranging from mainstream all the way through upscale to luxury, we've got that diverse portfolio for owners and for customers to access that demand. And so the big companies can keep getting bigger. They'll build stronger technology platforms, bigger loyalty programs. And you'll see the industry continue to consolidate to some degree in the smaller companies as they can't compete, too. But it's going to be a very healthy industry and it's going to—I’ll tell you 2025 will be a lot funner than 2020.
So the very last, last question now. Most important of all. When we do tape that episode in 2025, would you prefer to tape it at Rouloff’s on the back porch of College Town Bagel's or in the Statler Hotel. Rachael?
College Town Bagels because I shy off carbs these days. But if I was going to have a celebration, I'd like to go face down in a pile of bagels.
I'll see you for a pint at Rouloff’s.
Well, on behalf of The Weekly Take, I want to thank, first of all, Keith Barr, CEO of IHG Hotels and Resorts for joining us. Keith, thanks for coming out.
Thanks for having me on.
And then I want to thank our friend and colleague, Rachael Rothman, the head of Hotels, Research and Data at CBRE. Rachael, well done. Thanks for joining us.
Thank you both. Such a pleasure.
Just a little parting, Cornell humor among alums about some beloved Ithaca institutions worth a trip, in case you were wondering. And we thank our guests once again for their hospitality.
And for more on the topic of hotels and about our show, check out CBRE.com/TheWeeklyTake and make sure to come back for more informative conversations in the weeks to come. We're working on episodes about tech talent, the state of coworking and business disruption with economist and former Spotify executive-turned-author Will Page. We'll also have some of CBRE’s best and brightest thought leaders returning for our annual mid-year outlook.
And what's your outlook on the show? Drop us a note with your feedback. We'd also invite you to subscribe, rate and review us wherever you listen. Thanks for joining us. Until next time I'm Spencer Levy. Be smart. Be safe. Be well.
CEO, IHG Hotels and Resorts
Keith Barr has been the CEO of IHG Hotels & Resorts since 2017. IHG is one of the world’s largest hotel companies, with nearly 6,000 hotels in more than 100 countries. IHG’s brands include InterContinental, Holiday Inn and Holiday Inn Express.
Head of Hotels Research & Data Analytics
As CBRE’s Head of Hotels Research & Data Analysis, Rachael Rothman, CFA is responsible for data analysis, thought leadership, and leveraging CBRE’s proprietary data and best in class brokerage and capital markets expertise to help hotel owners, brands, and management companies maximize profits while minimizing risks.
Global Client Strategist & Senior Economic Advisor, CBRE
Spencer Levy is Global Client Strategist and Senior Economic Advisor for CBRE, the largest commercial real estate services firm in the world. In this role, he focuses on client engagement and public-facing activities, including thought leadership work performed in conjunction with CBRE Research. He also serves as Co-Chair of the Real Estate Roundtable’s Research Committee.
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