Ben Godon, Head of Hospitality Management at Colliers International, shares his insights on the state of the UK hospitality market in light of a tumultuous year and uncertain future

Ben’s wide-ranging expertise includes everything from advising on budgeting and cashflow generation, implementing capex projects, and identifying and negotiating new business opportunities.

Ben sat down (virtually) with Associate Matthew Vance to share his insights on the state of the UK hospitality market in light of a tumultuous year and uncertain future.

What is your role and how does it fit into the hospitality landscape?

We work solely for hotel investors in managing their hotel assets. We sit on the owner side of the table; the opposite side to operators and tenants. However, we inevitably end up in a tri-partite relationship with the owner and operator. This is for the simple fact that unless we can get the operator on the owner’s wavelength, it is going to be a very fractured relationship.

Has your role always existed within the industry?

Not at all. I spent the first twenty years of my career working for hotel operators. At that time, the ownership structure was much more traditional – in most instances, the operator was also the owner of the hotel.

It was not until around 2000 that the ownership structure began to change in the UK. It came from across the pond in the US, where real estate investors were starting to diversify and look at hotels as another distinct asset class alongside residential, commercial, etc.

Around that time, I was general manager at a hotel that was visited by a potential buyer of the real estate. It became obvious to me that this was the direction the industry was moving in. Very shortly thereafter, I joined Clive Hiller’s Vision, which was the first asset management service in the UK offering real estate investors specialist hotel advice.

By their nature, hotel investors come from a range of different backgrounds; some have experience in hotel ownership, but many do not. Our service was originally set up to provide expert hotel advice to those that did not.

What a year 2020 has been for hospitality. What has happened and where are we now?

We had “lockdown one” that began back in March 2020. This was very dramatic, and closed the front door on all of hospitality. We managed to re-open some businesses during the summer period, and saw some very strong trading in the UK domestic leisure market that continued to grow into Q3 2020.

Then we very quickly found ourselves going into “lockdown two” in November 2020. This was different; hotels were not mandated to closed, and in fact around 50% of our hotels remained open.

Now we are in “lockdown three”, which was somewhat unexpected, and has meant that nearly all hospitality businesses have had to close again for the foreseeable future.

What has lockdown three meant for 2021 budgets?

For anyone that wrote budgets for 2021 in Q4 2020, it’s time to throw them away and start forecasting again.

We had always known Q1 2021 was going to be subdued, but had been quietly optimistic of things improving in Q2 2021. That is no longer the case; lockdown three has pushed back our recovery expectations by at least 6 months.

In Q1 2021, businesses will essentially be closed. You could forecast re-opening from March onwards, but the reality is that Q2 is going to be very subdued as well. Moving into Q3 and Q4 2021, occupancy rates could start to pick up in some hotels able to trade off the staycation market, possibly reaching 30%-50% by the end of 2021.

How should the UK government help?

The furlough and flexible furlough scheme, VAT reduction and business rates holiday all need to be extended. Without any one of these, we could see substantial business failures and unemployment in the hospitality industry.

Where is the silver lining?

For those businesses that can survive, the staycation market has the potential to be very strong in 2021. Even as other parts of Europe begin to unlock, they may not be ready and willing to accept British holiday makers yet.

Hotels should be thinking about this trend now and planning their marketing strategies accordingly.

In particular, London hotels could see a real upside if we can get them open in time for Q3 and Q4 with all the events (theatres, conferences, retail, etc) that typically happen around that time.

When will hospitality see a return to “normal”?

We are hoping to see a rapid recovery in the industry by 2022, with international travel returning to normal levels, but with ADR still lagging behind. By 2023, we think RevPAR will return to 2019 levels.

With the rollout of vaccines, which thankfully the UK is at the forefront of, there is some reason to believe there is light at the end of the tunnel.

However, the real challenge is that even once revenue returns, there will be a lag until profit comes back.

What tips do you have for hotel stakeholders during these tough times?

If you are a hotel investor, you need to be having frequent discussions with your operator. I would strongly recommend having an asset manager to lead these discussions and welcome anyone to reach out to me.

It is vital that hotel investors have visibility on business forecasting so they can understand what this means for cashflow and profitability. As a minimum this should be on a weekly or bi-weekly basis.

Hotel investors should also be engaging with lenders on repayment terms, and be open about the pressures they are facing. Cash flow and liquidity are going to be a huge focus in Q1 and Q2 2021, and investors will need their lenders’ support.

So far, we have seen lenders be generally supportive of the industry, but this may change as we move into 2021 with increasing concern about unpaid debt. As lockdown three starts to bite, we could see receivers and administrators start to get busy very quickly.

What change has COVID-19 had on different hotel structures?

There has been a structural change in how the lease model is perceived. Previously, owners were under the belief that tenant operators meant guaranteed income. That is no longer the case as we have seen many hotel landlords not receive rent from their operators.

The lease model is very popular in certain parts of Europe, though less so in the UK. I think the lease model will continue to exist, but in some different, hybrid form with a lower fixed base rent and higher turnover component. Equally, I think more owners (especially in Europe) will seriously consider the management model.

Has COVID-19 changed deal-making at all?

The franchising model is becoming more popular among owners, as they feel much more in control of their own destiny from a revenue and profit perspective.

This trend has been building up in the last 3 – 5 years, but brands – particularly more upscale brands – are starting to embrace franchising more now. We are seeing some 5-star brands offer franchises whereas previously that was never the case.

Brands like the franchise model because it helps them accelerate their development pipeline, there is no capital commitment, and the agreements are often more straight forward than management agreements. These factors have all become more attractive as brands look to recover from Covid.

We are also seeing brands offer more flexible standards in term of hotel conversions. If a brand eases up on standards and that allows conversion costs to be reduced from say £30-40k per room to say £15k, that is a substantial dynamic to attract owner investors when you profile the ROI.

What impact has COVID-19 had on technology in the sector?

COVID-19 has accelerated the roll out of certain technologies – such as mobile check-in – that have been around for several years but which operators have been slow to implement. However, there has been no dramatic shift; hotel-keeping remains a pretty straight forward discipline.

Going forward, anything that can help reduce costs, especially labour costs, and especially for 3-star or 4-star hotels, is going to be very attractive. Despite COVID-19, there remains a lot of pressure on labour costs on the back of Brexit.

One example is in food production. Pre-packaged foods have become so advanced that even high quality meals can be delivered to hotels and prepared by staff with very little technical knowledge – which is obviously much cheaper than hiring a trained chef.

Is the corporate traveller dead?

I’m not a believer in the theory that in-person meetings have ended forever. We are social animals, whether in our private or our corporate lives, and so corporate travel will come back, along with weddings, conferences, conventions, etc.

What makes a good hotel?

Attention to detail. You can tell as soon as you walk into a hotel whether the level of attention to detail is reflective of the type of operation it should be.

Secondly, the general manager. I firmly believe GMs make or break a hotel business – whether you are a large luxury brand, mid-tier corporate or an independent hotel.

What impresses you about a hotel?

I am always impressed with how VIP guests are looked after at upscale hotels. Most VIPs want a very discrete, low-key stay they can trust and be comfortable with – and it is always interesting how a GM and their team accommodate this.

The days of rock bands hurling TVs out of high rise hotels are probably gone to an extent. In our experience of looking after some stalwarts of the rock world, they like to be tucked up rather early with a cup of chamomile tea rather than a bucket of Bollinger.

Perhaps some would say rock ‘n’ roll isn’t what it used to be in hotel keeping!