Thoughts from The Americas Lodging Investment Summit (ALIS)
August 9, 2021
What does the future of hospitality look like after eighteen months of disruptive change? This was a big question discussed at The Americas Lodging Investment Summit (ALIS) in Los Angeles, as Streetsense’s Managing Principal Herb Heiserman and Executive Director of Hospitality Jay Coldren attended to connect with fellow hospitality leaders.
For those who couldn’t make it to this year’s ALIS, here are some key takeaways:
Drive Markets Dominate
With pandemic travel restrictions and hesitations about flying, travelers have been looking for more accessible ways to get away. And they’ve been looking in their own backyard. Occupancies and demand in drive markets and second-tier cities, specifically near outdoor attractions, have remained strong throughout the pandemic. Looking to “get away” without getting on a plane, travelers are opting for road trips within a 3-5 hour radius from their home. Many have focused on National Parks and outdoor destinations to enjoy activities that don’t require close contact or wearing a mask. While nearly every business in the hospitality industry felt the sting of the pandemic, these drive markets have remained strong.
The Elevation of the Boutique
A hot sector before the pandemic, the boutique and soft branded hotel category remain top of mind for many hotel investors. Because leisure travel has been the first segment to come back in the wake of the pandemic and the long-term effect on business and group business travel is unknown, hotel developers and investors are focused more and more on experiential hotel categories. This has become exponentially popular with the rise of collection and soft brands from the major hotel companies (Autograph, Tapestry, The Luxury Collection). These brands allow for a unique, boutique hotel-like experience backed by the quality standards and distribution power of the big brands – offering personality and financial stability in the same package. We see this approach dominating the market as an ever-increasing number of travelers stray away from commoditized hotel experiences in favor of personalized and unique accommodations.
Reflagging and Deflagging
One of the by-products of the drop in occupancy during the pandemic is that many of the larger branded hotels did not meet performance thresholds that kept their owners contractually tied to the big brands. This unprecedented situation opened up the door for hotel owners and competitor brands to explore either reflagging (meaning rebranding as another chain hotel) or deflagging (becoming an independent, non-affiliated hotel). While some owners sought out new partnerships to weather the storm of the pandemic, others are leaving their flagship brands to try their hand at operating as independent properties.
One of the big movers in the hospitality space has been Sonesta who has come out of the pandemic with the addition of more than 200 hotels, many reflagged to the Sonesta brand, and the acquisition of the RLH Brands (Red Lion) – a bold move that has made Sonesta a major player in the hotel space.
Another strategy that has emerged during the pandemic is the reflagging of a property from a major chain (think Westin, Marriott, and Hilton) to a soft brand within the same portfolio. This has been done to downshift to some more flexible and affordable hotel standards without leaving the safety and infrastructure of a major hospitality company.
Construction Pipeline Disrupts New Builds
The pandemic’s financial and labor impacts have also dealt a blow to the hotel construction pipeline. Many new build and renovation projects have been halted, delayed, or even abandoned as supply chains have been disrupted, causing skyrocketing prices in material and labor costs. Companies ready to start building again as we come out of the pandemic have been met with months-long delays in raw materials, building supplies, case goods, and textiles. While demand outstripping supply is often a short-lived problem, the realities of the entire world coming back to life after COVID-19 is presenting significant challenges.