Cain International

12th November 2020

"Due to the current climate, the hotel sector favours the brave"

Written by
Jonathan Goldstein

Chief Executive Officer

Hotels have had a tough year. This was brought home in September with the news that the 478-room Hilton Times Square in New York would not be reopening, alongside several other Manhattan hotels. Closer to home, the Ace Hotel in Shoreditch announced that its doors would stay shut.

These headlines, combined with news that according to CBRE, 2020 is projected to be the worst year on record for hotel occupancy, feel like a bellwether for the sector. However, pundits would be wrong to speculate that these closures are an omen of things to come.

Up until the start of this year, the hotel sector was on an upward trajectory to become a safe haven for investors. According to JLL, global hotel deal volumes in 2019 hit $66bn (£50.13bn), bolstered by demand from domestic and international travellers. In addition, the United Nations’ World Tourism Organisation recorded 1.5 billion international tourist arrivals globally in 2019, up 4% on 2018.

Similar growth was forecast for 2020. But then Covid grounded planes, forced businesses to shut and the great cities slept. Yet the desire to travel and experience new settings and cultures remained. There are numerous statistics to support this but all the proof we need is found when we ask ourselves: ‘Do I want to travel again?’. When we can do so safely, I believe we will see a groundswell of people returning to their favourite travel locations and exploring new destinations.

That said, the sector won’t return or improve on years prior without fighting for it. An issue that is tenable in ‘normal’ market conditions, such as oversupply, becomes insurmountable in a pandemic, and the fundamentals underpinning a hotel’s success – the right offering, customer service and location – are now more crucial than ever before.

Travellers are more discerning than they were when some hotels’ long leases were signed. Platforms such as Airbnb and Instagram have changed our expectations of where to stay, what we can experience, and what we’ll pay for it. The copy-and-paste hotel format where guests would not know if they were in Middlesbrough or Miami without looking out of the window is not going to work anymore.

A report by Microsoft found that 96% of customers say service is important in their choice of loyalty to a brand. From my experience of working with successful brands such as Six Senses, Hilton, and Raffles, I’m surprised it’s not 100%. Following a highly disrupted year of travel, plans and brand loyalty are up for grabs and we win these not through room rates but the offer of unique, ‘never forget’ moments.

Until we return to some form of normality, a slew of hospitality businesses face an uphill battle – many of them will sadly not survive. However, there is an opportunity for strong assets and brands with the right fundamentals. It is a venture for the brave, but those that succeed will champion the sector for years to come.

This article originally appeared in Property Week.

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