Interview with Joe Stather
We speak to CBRE's Joe Stather about his perspective on the current state of the hospitality industry, Airbnb moving in on the meetings market and his love of all things 'North'. Joe will be speaking at this year's Forum - be sure to book your ticket!
Joe has been with the Hotels team at CBRE for over four years.
His role in Investment Advisory includes management/strategic-consulting, market and financial-feasibility studies and investment due-diligence.
Joe regularly comments on the hotel-investment market through the delivery of industry presentations and contribution to panel discussions.
If you were running a hotel, what would be top of your agenda over the next six months?
"I would be focusing on the satisfaction and retention of staff. Through the first quarter of 2018, UK average payroll costs have continued to increase year-on-year, despite a slight decline in occupancy. It has become increasingly difficult and expensive for hotels to recruit, with the problem most acute in, but not limited to, the kitchen and housekeeping departments. Notwithstanding a currently tight UK labour market, the relatively high exposure of hotels to foreign-born workers has started to become a challenge since the tide began to turn on net migration growth post the EU-referendum. With the hotel development pipeline becoming more substantial, particularly in the full-service echelons, there will be more properties competing for talent – this could accentuate the supply/demand imbalance even further.
Technology can enable hotel staff to do their jobs more efficiently and focus on areas of greatest guest impact, but doesn’t offer a complete solution, at least in the short-term. Customer reviews suggest that people and service remain key differentiators for hotels, particularly when competing with the likes of Airbnb.
Retaining staff isn’t just about pay. Teamship, empowerment, training and development are all key motivators for employees in the hospitality industry – my efforts would be spent on reinforcing a culture that embraces these elements."
In the last couple of weeks we’ve seen Airbnb begin its assault on the meetings market in Australia. Do you see this as a sign that one day they’ll take over the world? Or is it a tacit admission that they’re perhaps reaching maturity in the leisure market?
"Airbnb’s explosive growth as a peer-to-peer lodging platform was never going to continue exponentially. However, they have a desire to successfully IPO, probably in 2019, and must therefore exhibit sound, long-term growth prospects. They have been criticised for exacerbating housing shortages, clashed with authorities in key cities across the world and been compelled to restrict rental activity in certain markets to comply with local laws. One can therefore see why they may be seeking to diversify their original business model and penetrate new markets, such as meeting-space and traditional-hotel distribution. However, the hotel distribution landscape is already relatively saturated and highly competitive. Furthermore, the meetings and events market, particularly in the UK, has proven challenging for hotels in recent times due to contracting demand. That said, the clever and creative folk at Airbnb could be just the people to reinvigorate this tapering sector."
Can you be 'established' without being part of 'the establishment'?
"Absolutely! Consumers are increasingly allured by authenticity and transparency – particularly Millennials, who are the driving force behind the experience economy. Some of the relatively new hotel operators have found ways to capitalise on this trend and consequently developed a substantial and loyal following. This has been done through a focus on provenance (including the local sourcing of food, drink, guest amenities, artwork, furniture, etc.), service delivery, marketing/communication (particularly on social-media) and the development of spaces where guests and locals can mix and interact. Many of the more ‘established’ hotel companies are following suit with the development and roll-out of their lifestyle brands; however, their scale can often make it challenging to achieve all of the elements highlighted."
You’ve been with CBRE for four years now. It’s been a time of enormous change (when isn’t) but what would you say has changed the most in that time?
"I would have to say hotel ownership. Four years ago, the major operators, after deciding to distance themselves from the bricks and mortar, were nearing the end of their asset-disposal programs. In the early phases of economic recovery, opportunistic sources of capital, principally from North America, acquired large UK portfolios and significant individual assets. Many generated considerable scale and restructured, re-positioned and re-branded their investments in the process; positioning them to best capitalise on improving operating performance. Asian investors then became very active, buying a number of these ‘platforms’ from the US Private Equity funds. However, demand from this capital source has since tempered and we are now experiencing much more interest from institutional-style UK and European equity sources.
The sophisticated investors that have been, and continue to be active in the space, along with the relative size of the market, is a sure sign of hotels becoming an increasingly mainstream asset class."
Joe, you’re known for your deep love of all things 'North'. What signs are you seeing of the Northern Powerhouse beginning to power up?
"Manchester is booming! Our CBRE colleagues are reporting tremendous office occupier demand, driven by the Business Services, TMT and Finance Sectors – leading to talks of an arms race for trendy workspace. House prices in the city have grown considerably and are expected to boom in the coming five-years. Unsurprisingly, demand for hotel accommodation has hit an all-time high, with Manchester’s integrated transport network supporting growth in the number of domestic and international visitors. Devolution of powers from Westminster and investment into the city’s economic infrastructure seems to be driving growth across all business sectors.
However, it could be argued that attempts to rebalance England’s southern-centric economy have been too Manchester focused. Progress has been made in Liverpool and the Tees Valley; however, Yorkshire remains the obvious hole in the ‘Northern Powerhouse’ project. A devolution deadlock is leaving Yorkshire behind, particularly regarding funding from central government for infrastructure and skills training. Leeds, for example, has flourished in recent years, yet Yorkshire as a whole continues to punch below its weight economically. Transport is a particular concern, including transpennine rail services, road congestion in the cities and poor connections to airports/ports. There is little doubt that this is dragging on the expansion of Yorkshire’s visitor economy and consequently the performance potential of the accommodation sector."
What do you hear economists chatting about? What should hoteliers be aware of?
"In the short-to-medium term, should the Bank of England tighten monetary policy further, hoteliers can expect a subsequent slowdown in demand growth. Weaker UK consumer spend will temper domestic travel and a more buoyant pound will decelerate the flow of inbound visitors. Nonetheless, a consequential fall in inflation should ease operational cost pressures and allow hoteliers to deliver improved conversion of revenue to profit."
How are the provinces doing?
"Generally well. Rolling 12-month occupancy is at 76.3%, which for a market average is very impressive and demonstrates strong overall demand for accommodation. In some markets, not limited to Edinburgh, Belfast and Manchester, the rate of supply growth is becoming more material. However, a favourable outlook for these cities is underpinned by wider-investment into infrastructure, local-economic drivers and tourism initiatives. As a result, one can have confidence in their ability to successfully absorb new stock, whilst elevating the overall quality of their accommodation offer."
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