Should hospitality target millennials?
There’s a hotel brand explosion taking place in the hospitality investment arena— but RSM’s John McCourt says consolidation could soon be in the cards.
Hotel companies globally have dramatically increased the number of brands under their operating banner over the past decade— Marriott boasts 19 brands, Hilton owns 13 brands and Starwood operates 11—in a bid to entice different segments of the population and different generations, not least millennials, to their hotels.
However, when it comes to millennials, McCourt says the strategy may not prove as effective as hoped.
“Millennials are a very different animal when it comes to demographics and what we expect,” he says. “The millennial generation is known for wanting uniqueness in a product and is not necessarily aligned to one particular brand as you’ve seen with past generations.”
As such, McCourt sees brand consolidation in the industry over the short to medium term. “There are so many individual brands out there. There’s almost a brand for every day of the week, and we are starting to see some consolidation take place. After all, how can a brand with just five properties be sustained?”
That’s not to say brands won’t ultimately attract the millennial generation in the long run. “I do think that millennial preferences will change as they get older and as they start to have families,” says Court. “They will become more brand aware and perhaps become more brand loyal as they go through their lives. But will it sustain all the brands out there today? I don’t know.”
What will change is hotel companies adapting their products to meet the constantly shifting demands of their guests—particularly with the use of technology.
“That’s where things will really change in the short term,” says McCourt. “Look to the Yotel flagship hotel in New York, with automated check-in and a mobile concierge app; even your luggage is handled by Yobot, a robotic arm previously used in the automotive industry.
“That’s the stuff around the edges where you will see a lot of change by the hotel companies, because we are in a technological era and that’s what people, not just millennials, are used to,” he says. McCourt also sees foreign investment in the U.S. hospitality sector changing over the coming five to 10 years, particularly with Chinese and Asian institutions and high-net-worth individuals.
In the past two years, almost $21 billion of foreign capital was targeted at U.S. hotels, with roughly half of that coming from Chinese investors. And at that pace of investment, it doesn’t look like it’s slowing down, with more than $9.8 billion of foreign capital being deployed in the past six months alone.
“I see there being as much investment coming from China and Asia into hospitality in the major gateway markets of the world as ever,” McCourt says. “But there’s a change in appetite among this foreign capital. Three or five years ago, this capital was looking for large portfolio acquisitions with 20 or 30 assets or buying very large marquee assets, such as the Waldorf Astoria. But a lot of that capital is now looking for individual properties and not just at the very top of the market.
ADDITIONAL REAL ESTATE INSIGHTS
Real estate funds with an environmental, social and corporate governance continue to attract institutional investors with ESG mandates.
Low interest rates provide an opportunity for real estate investors to access low-cost capital and make long-term strategic investments.
Effective Jan. 1, 2021, the long-standing terminating business gain exclusion for unincorporated business tax purposes is eliminated.