Tétris Design & Build is a London-based design company that is working increasingly with hotel firms. Sharon Grob, client development director, hotels, for Europe, Middle East and Africa at the company, said she is seeing a lot of hotel construction activity.
Much of the push comes from younger generations and their pent-up demand for travel and design-led hotels.
“It is country-specific, but every hotel in drive-to destinations are solidly booked," she said. "For example on the Baltic coasts, Andermatt [an alpine resort destination in Switzerland] had had its best year ever. There is fresh air, and people still want holidays."
Younger travelers are looking for experiential stays at design-forward hotels, she said.
“We’re seeing a generational transfer. Older people want things to work, but younger ones want the more experiential," she said, citing Ruby Hotels and Accor's Mama Shelters brand.
"Owners are happy to reposition themselves with major hotelier operators. Conversions are big."
Markets in the regional U.K. are also seeing more construction activity in the midmarket segments funded by institutional capital, Grob said.
But construction might not be moving as quickly as before. Bořivoj Vokřínek, partner of strategic advisory and head of hospitality research for Europe, the Middle East and Africa, at business advisory Cushman & Wakefield, said there has been a general slowdown of development activity, with projects being delayed, canceled or subject to a change of use.
“This is confirmed by the surveys that we have done across several markets among operators, confirming a notable percentage of projects being on hold or canceled,” he said.
At the beginning of this year, his company also looked at the pipeline as reported by CoStar and STR hospitality data division AM:PM in the U.K. and started to verify it in London by calling developers and confirming the status of their projects.
"From the responses we got, it seems that a notable proportion of the projects are either delayed or canceled," he said.
Vokřínek said government aid to businesses in Europe has resulted in development delays, which differs from what he is seeing in the U.S. where banks and other debt providers are currently more active.
“Other factors could be the higher percentage of leases in Europe, where developers have frequently secured tenants with minimum rent payments; thus, there is less concern about cash flow after completion," he said. "... We have been seeing the increased number of forward-funding or forward-commitment transactions.
“In 2020, over a quarter of deal volume involved development or conversion projects, as opposed to existing/operating assets. This is more than double compared to 12% in 2019."
Building Bullishly
Matt Luscombe, CEO of hotel management firm Cycas Hospitality, which also owns some of its properties, said he is continuing construction throughout 2021.
“We’re opening this year some beautiful hotels," he said. "When is a good time to build? There are always ups and downs in demand, but also the same holds true of supply, which always seems to spike at the very worst time. These things tend to be always pro-cyclical, with supply and demand not working together."
Luscombe said of the 12 hotels in his pipeline, only one has yet to break ground, which was due to a process with a lender, not a construction crew.
Camil Yazbeck, senior vice president and head of development for Europe at Accor, said there are construction hot spots in Europe and that development is being led by lifestyle demand.
“There is a lot [of construction] in Russia, CIS [countries] and Eastern Europe, which might be skewing the numbers across Europe, and there is some in more traditional Western Europe,” he said.
Yazbeck said hotel construction has derived from office conversions and non-performing hotels looking for new positioning, which could include adding co-working spaces, lifestyle and entertainment offerings and platforms.
“Lifestyle gives a lot of [return on investment], maximizing every inch of your hotels. People do not want purely the brand, unless it is luxury or upper upscale. They now want a combination of hotel, F&B and working [spaces],” he said.
Yazbeck said he has not seen any issues in the U.K. with hiring construction companies during lockdown.
“The U.K. always has allowed construction to continue throughout the pandemic,” he said.
Investors are increasingly interested in projects that do not need immediate capital injections or working capital to keep operations afloat, Vokřínek said.
“[Such a strategy seems an] interesting solution for investors looking to deploy their capital by buying assets which will be operational only when the market recovers in several years,” he said.
Grob added lead time for furniture, fixtures, and equipment has lengthened a little, with fabrics and wall coverings hard to source at the moment.
By Terence Baker
