NYC Conference and it's Smoke Signals
NYU conference in NY City in June 2023 was a smoke-filled forum not only due to the forest fires up north; but also the amount of smoke being delivered by many of the predicators on the panels: To them the world is perfect …but is there these 5 smoke signals to be considered?
A. Luxury travel being reduced.
B. Recession coming?- Commercial office space empty
C. No new Hotel Inventory coming why? & No Staff to manage them anyways
D. Saudi Hotel boom- No product left for the rest of us
E. Ukraine Crisis
F. No free Money sorry
A. NYU Smoke Signals- Luxury Travel
The “richcession” threatens luxury travel as economy spooks even the wealthy
The luxury travel market has been booming this year, as unfettered travellers make the most of their recently acquired freedoms to not only travel, but to treat themselves. However, there may be a warning for the West from the luxury retail sector that the good times may not last indefinitely and that the axis might shift east, as Asian high net worth individuals stay closer to home.
The first warning of a change in the mood music came recently when high-flying luxury retail stocks crashed down to earth mid-May, with spooked investors offloading shares amid fears over the impact of a softening US economy and lower spending from the wealthy, dubbed a richcession.
Rising interest rates, squeezed consumer spending, and a looming recession mean the macroeconomic outlook appears bleak and although a shift in consumer spending towards experiences should soften the blow to hotels, recovery is already slowing. A contraction at the top end of the market would also have ramifications lower down with rates compressed between the segments.
“According to the results of our latest US Consumer Pulse Survey, they’re [consumers] worried about rising prices and job security, yet they’re optimistic and still spending. They’re switching to less expensive brands to save money, but they’re also willing to splurge on certain goods and services.” — Tamara Charm, partner at McKinsey & Co
B. Is it time to diverse your commercial office
Post-pandemic, your kids are back in school, retirees are back on cruise ships, and physical stores are doing better than expected. But commercial spaces is hurting perhaps more than most observers realize, and the consequences for landlords, banks, municipal governments, and even individual portfolios will be far-reaching. In some cases, they will be catastrophic. But this crisis, like all crises, also represents an opportunity to reconsider many of our assumptions about work and cities.
During the first three months of 2023, U.S. office vacancy topped 20 percent for the first time in decades. In San Francisco, Dallas, and Houston, vacancy rates are as high as 25 percent. These figures understate the severity of the crisis because they only cover spaces that are no longer leased. Most office leases were signed before the pandemic and have yet to come up for renewal. Actual office use points to a further decrease in demand. Attendance in the 10 largest business districts is still below 50 percent of its pre-COVID level, as white-collar employees spend an estimated 28 percent of their workdays at home. Why not repurpose this space as hotels on long term stay accommodation as some has done a combination of office and home. Why not?
C. Will staffing shortages in the USA persist despite all efforts increased wages & benefits
At the start of 2023, the U.S. Bureau of Labor Statistics released a report showing the overall economy added 517,000 jobs. The leisure and hospitality sector accounted for about 25 percent of that, adding more jobs than any other sector. At the same time, the industry had 2 million open jobs despite returning to pre-pandemic employment levels, according to the U.S Travel Association. What's more, while many industries have recovered their workforce, the leisure and hospitality sector is still about half a million employees short of where it was before COVID-19.
Further research from the American Hotel & Lodging Association shows that 79 percent of hoteliers report staffing shortages. As a result, 71 percent of hoteliers are increasing wages, 64 percent are offering more flexible hours and 33 percent are expanding benefits. Yet, 81 percent of hoteliers are still unable to fill open positions, according to the AHLA.
"People left our industry over the last three years when they were forced to, and many are not coming back when there are many options and jobs available," said Laura Presnol, VP of talent and culture for Davidson Hospitality.
"I think the labor shortage is our new reality," said Bob Habeeb, CEO at Maverick Hotels and Restaurants. "As seasonal demand grows later this year, we will again be facing acute shortages."
Trying to fill the gaps can prove almost impossible. Turnover, which is already historically high for the industry, has become even worse now, according to Dan Paola, VP of operations at Raines Co. "You always had turnover or hotel hoppers. But now you're pulling in people from different industries, maybe warehousing or retail, and they think they can do housekeeping or the front desk. It's a big jump. People don't recognize what they're getting into," he said.
New Talent
Labor challenges are leading to new career opportunities for hotel employees, especially when it comes to wages. As of December, national average hotel wages were at all-time highs of more than $23 per hour, according to the AHLA. In a survey conducted by Interwork’s Economic Research Division, 52 percent of hospitality businesses will raise wages to attract and retain workers. And 73 percent of those who said they'd increase pay already did so by $2 an hour or more in 2022.
But hoteliers shouldn't put all their eggs in the "higher wages" basket. As the data show, wages alone won't fill all the open jobs for the industry. "It's about culture and engagement. You need to give people a great place to work," Paola said. "Wages can only go so far. What are those other things that employees want?" To find out, Paola said Raines is making use of employee engagement surveys to measure and find opportunities and make sure employees are getting the right training and have the tools and resources necessary to do their jobs. Raines has also implemented daily pay so employees can access earned income the day of or the day after, which Paola said has been a selling point for team members.
"People look at jobs today as a commodity, which is easily replaced. To win the retention battle, employees must feel a sense of belonging and purpose," Habeeb said. "It's all about relatability and authenticity."
Davidson's Presnol said the hotel industry is now competing with remote roles, gig shifts and other positions that might have a more surface-level appeal: "It continues to be a challenge to convince those that have not tried the hospitality industry to join. There is a perception and, quite frankly, a history of not being flexible with schedules, not being competitive with compensation or creative with benefits."
Filling the Gaps
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Sources said that service is the biggest gap to fill right now. That's not just because it's more difficult to find front-line employees today, but also because there's a lack of skill out there.
"It's finding people who genuinely care. You can't teach caring, and you can't teach genuine human connection," Paola said.
The industry has surely changed, and Presnol said hoteliers need to have an open mind and be more forward-thinking about operations" You have to be open to people that have not worked in hotels," she said. "If you do make that commitment, it goes even deeper. It now involves the greater commitment to onboarding them and training them for success. It is not plug and play. It is committing to giving them knowledge, building their confidence and, in turn, it will win over their loyalty."
Paola said that while tech and automation will continue to find their way into the industry to help fill some labor gaps, it's also essential for success to engage employees early on because tech can never be a replacement.
"You have to hire for personality over experience. You have to show them you can make a great career in hospitality," he said. "We have so many stories of people starting in housekeeping and are now in the corporate office. We need to tell those stories, especially early on in orientation."
Presnol said hoteliers should stay focused on internal talent and succession planning.
"Focus on the careers that can be built from the ground up. Our CEO got his start as a bellman," she said. "There have to be bellmen in our hotels today that will be the future CEO. It just takes someone to be focused on building an internal bench or taking that bellman under their wing." At the end of the day, Paola said hoteliers need to work to adapt". Too often we're thinking about how people need to adapt to us in the workforce. Now it's about taking the focus off that and asking how do we adapt.
D. Smoke Signals: Saudi Arabia hotel boom prompts supply chain fears
Over the next few weeks, we’re going to be delving a little deeper into some of the topics and trends from this year’s IHIF. From dealmaking to ESG, we’ll have you covered. Today, we’re looking at profitability and in particular the potential impact of the Saudi Arabian hotel boom on the rest of the world.
What’s happening: Disruption to hotel development pipelines is expected in 2024, due to the unprecedented volume of construction in Saudi Arabia and a global logistics and supply industry not fully recovered from Covid-19.
Why it matters: Saudi Arabia currently has 42,033 hotel rooms under construction, more than any other country in the Middle East and Africa, according to STR. The challenge for anyone looking to build elsewhere is competing for materials and supplies.
1 big quote: “In 10 to 18 months, Saudi Arabia will have a requirement for so many materials. If you consider that for hotels in Africa, we procure everything including concrete and whatever finishing elements that need to go into the building, most probably we’re going to face a supply problem. What’s happening in Saudi Arabia is in addition to all the developments around the world that have not stopped.” — Alessandro Tedesco, CEO of global hospitality procurement management company FEBC
E. Smoke Signal: Ukraine Crisis
Despite increasing political polarization around the democratic world- where it can now seem as though we're living in starkly divided realities, formed by competing ideological views and media ecosystems-there's a remarkably broad and resilient moral consensus on the foundational values of democracy and human rights.
You can see this in the global response to Moscow's assault on Ukraine, widely interpreted not only as an illegitimate invasion of one country by another but as an attack by an autocratic power on an emerging democratic society- essentially, an attack by autocracy on democracy.
You can also see it in the global response to other challenges to democracy and human rights when they might break into the news-whether it's Beijing's designs on Taiwan or ongoing oppression of the Uyghurs in northwestern China; Moscow's imprisonment of Alexei Navalny and other political dissidents; or Tehran's crackdown on Iranian women and their pro-democratic allies since the death of Mahsa Amini at the hands of the regime's morality police last year.
You can see it in the global response to the standing nightmare of the North Korean prison state, at the end of the spectrum, or attempts to undermine elections in established democracies like the United States or Brazil, at the other.
What do mass street protests mean for the regime in Iran? Vali Nasr on how the demonstrations represent a new kind of danger to the Islamic Republic
It's been eight months since a new wave of demonstrations broke out across Iran, and still, the regime hasn't been able to stop them. The unrest began after the country's morality police arrested Mahsa Amini, a 22-year-old Kurdis woman-because her hijab didn't fully cover her hair, as mandated by Iranian law-and ended up killing her in custody. Support for the demonstrations remains widespread in Iranian society: Workers in the oil sector briefly went o strike, with groups of lawyers and doctors reportedly joining the protests as well. As demonstrators continue to mobilize around the slogan "Woman, Life Freedom," some are going so far as to call for the end of the Islamic Republic altogether.
Globally, Iran's theocratic system has been an archrival to the United States the Middle East and beyond since the Islamic Revolution of 1979. In the region, Israel has seen Tehran's nuclear program as an existential threat, the international deal to freeze the program remains highly contentious across the U.S., Israel, and Arab countries.
What do we foresee in the next 6 months?
1. The next six months could be pivotal for the industry with a cascade of refinancings triggering “stressed” sales. It’s not going to be straightforward, however, the regional banking sector is going through a period of turbulence with traditional lenders retreating.
2. Like the ripples from a stone thrown into a pond, what happens in the US will impact what happens in Europe and the rest of the world as the USA produces 43 % of world GOP.
3. “I call it more balance sheet distress. Just the fact that a lot of groups are going to be having to refinance, or look at refinancing, recapitalising at much higher interest rates, that in a lot of cases are double what they're paying before. That's just going to really be the catalyst to want to sell.” — Greg Friedman, CEO of Peachtree Group
F. Smoke signals :No free money sorry
Hotel investors need to get used to end of free money era
We’re through the looking glass. The era of borrowing money super cheaply is over and in most cases hotel investors haven’t yet had to face up to that change. As Tyler Morse, CEO of MCR said on day one of the NYU International Hospitality Industry Investment Conference: “Any nincompoop can make money in a zero-interest rate environment.” We’re about to find out who can make things work when the cost of debt gets a lot more expensive.
The trend for banks to pull back from traditional hospitality lending that started after the Covid-19 pandemic and has accelerated in recent months with the regional banking crisis in the United States is here to stay with private credit providers waiting to fill the gap.
Firms like KSL Capital partners are likely licking their lips at the raft of refinancing’s coming over the next few years. Investors will be paying more to borrow, that’s for sure, but the upside is that many of these new lenders take a more proactive approach to their relationship with owners with the idea of turning around and repositioning tired properties that have been starved of capex.
1 big quote: “What's really tricky is for the last two decades we’ve seen an industry…that has been fuelled by free money where basically every concept works for the most part. And so now we're going through this more realistic, Darwinian phase, where it's going to be survival of the fittest.” — Gilda Perez-Alvarado, global CEO of JLL Hotels & Hospitality