Generally speaking residential yields are much lower than hotel yields, the happen to offer lower risk profile, there's more customers, there's higher occupancy, and generally speaking residential also tends to correlate with house price inflation, which is different than the hotel business so resi values tend to go with house price values, and so as an investor you look at both the cash flow and the value side of things. Whereas in the hotel it tends to be that the cash flow is directly correlated all the time with the value. And so, yields tend to be lower, but capital appreciation can be higher, in resi than in hotel.
Real estate funds can be a part of the development process for hospitality projects. In this TV show Andrew Pratt explains what Patrizia is all about.
Real estate funds and commercial investment businesses
Patrizia was set up in the mid 1980s, basically as a residential property company investing in residential property in Germany. Went through an IPO in 2005, now has over fourteen billion euros worth of assets, mainly in central Europe, fifty residential and commercial, we have thirty funds in Germany, we're the second biggest house builder in Germany as well now, the market in Germany's changing from being a, er, rental market to home ownership. Similar model to the UK. We act for a hundred pension funds across Europe - well across the world, actually. The strategy for Patrizia was to replicate that model, in the UK. Came into the UK, about - just under two years ago now we've been setting up both residential and conversion, commercial investment businesses.
Hospitality TV will continue to feature shows about real estate funds and development. Why not take a look at who else has been featured in the Hospitality250.
I think the main reason you'd invest in a hostel concept is there's a real shortage of this type of accommodation - it's a niche that hasn't been well catered for.
So, while maybe twenty per cent of world travellers are youth travellers, only five per cent of accommodation is designed for youth purposes, so there's a real shortage and the other reason you'd do it is actually the economics are very good, you'll see on a sort of revenue generation index spaces that we will clearly out perform a typical three or four star hotel and the reason for that is simple, we have quite high bed densities, typically there are four beds in each, room, so you've basically got, on a smallish size room with it's en-suite bathroom, four people, consuming, food and drink, er, paying for the bed, and that creates a very, a very powerful, revenue generation per square meter.
In terms of profitability, hostels rank very high, because already the revenue generation is very strong given the bed density, and because our costs are actually much lower - typically for instance we've just opened up our Paris hostel with nine hundred and sixteen beds, and that's staffed by forty five people, so the ratio of staff to guests is incredibly good and on that basis actually our profit per bed and per square meter will certainly be well up in the hotel space. It's not at five star levels, but it's very comparable to many three or four star hotels.
The staffing levels are, obviously, materially lower, because what we're doing is providing much more basic services - the focus is very much on the ground floor, the social spaces where we have our event coordinators, our bar staff, and all the, all the reception staff, this is a 24/7 operation. And then upstairs the housekeeping's much more limited, there are no televisions, there are, just beds, er, and therefore the cleaning is much more basic, but it's functional and very purpose driven.
Hotel owners will all have some common challenges. HOFTEL aims to help hotel owners work together as Simon Allison explains in this video.
Hotel owners unite
Well we are a hotel owner's alliance, so - why? Essentially because if you look at the structure of the industry, I mean most people know, a lot of the hotel real estate is managed by third parties, by other people, and if it isn't managed by third parties it's branded by third parties. And most of those are bigger and more global and certainly more experienced at negotiating contracts than the owners. So, ten years ago, I decided with a group of other owning companies to get together and form an alliance, almost like a hotel owner's trade union. And our objective is to leverage the combined power of owning companies around the world.
Hospitality TV will continue to feature shows about hotel owners and real estate. Why not take a look at who else has been featured in the Hospitality250.
OTAs have disrupted the industry in more ways than one. In this TV show Brian Reeves discusses how OTAs drive conversion rates.
OTA's approach to conversion
I guess the cornerstone, from a conversions perspective, the cornerstone of conversion matrix is abandonment analytics and understanding why it is visitors to our web site don’t end up booking with us. So we look at the performance of a typical hotel’s web site and compare it with the online travel agents; there’s a gulf between the two. So people like Booking.com spend a lot of time, probably a lot of money in multi variant testing which is the key too that drives the conversion improvement. Hotels are starting to pay attention to that a little bit at the moment but what happens as a result is that as the online travel agents improve their conversion rate, their advertising cost per room night sold decreases. So what they’re able to do is carry on with a lot more digital marketing work which tends to be disruptive and gain an awful lot of OTA market share in that space where even if you look at – I think it’s got some of the leading hotel brands. They haven’t caught up from any like, science perspective terms of understanding that key component which is I guess the central component from a travel investment perspective.
The Hospitality Channel will continue to follow discussions around OTAs and bring you videos from experts within online travel agents. Look out for the next 10 industry experts to be announced as part of Hospitality250
New hotel technology can seem daunting to implement. In this TV show Richard Valtr of Mews Systems discusses emulating technology that employees know.
Staff friendly hotel technology
I think most of the people that have actually – that we’ve implemented the system with, they're actually frankly quite shocked at how easy it is to implement, how easy it is to actually train the staff up on the system. Because – especially if you have a young staffing core, they understand some of the features. So for example, the way that we think about the guest profile is actually thinking about it from the point of view of how they would see profiles on a social network so that they can actually work with the guest in the same kind of logic. So we’ve learnt from the likes of Facebook and the likes of Google in trying to actually incorporate all of those things which people understand and know and actually trying to understand these kinds of complex systems from that point of view. So, the actual implementation process and the changeover process is very quick on our side then it usually takes only about one training day to actually get everyone up to speed in most of the hotels that we’ve implemented the system in, so.
The Hospitality Channel will continue to follow developments in hotel technology and will bring you more TV shows from the companies producing new systems.
Staffing in new hotels can be dealt with by transferring people from elsewhere. However, as Khalid Anib explains in this TV shows, hotels in Saudi Arabia are giving the opportunity to local people.
Staffing new international hotels
Usually these international brands, they do bring people from either sister hotel that is already established in Saudi Arabia or through their other properties that are around the world. Now, Saudi Arabia have been a bit restrictive in term of lifestyle, so that creates a challenge to bring in certain profiles. Having said that, today Saudi Arabia is investing in Saudis basically. All the hotels are really into that . And we have seen recently this ratio growing. I remember it was something around 8/10%, now there are hotels with more than 40%. There is another element that we are noticing recently is that not only rank and file employees but also head of departments to GM’s level. In fact within our hotels we have four Saudi GMs that are very successful. And we have quite a number of number two that will soon be promoted to GM positions. So this combination today allows hotels to run successfully and to provide the quality that is required from a customer. And we can see that through guest reviews that has significantly been improved for the last five years where you could see really bad reviews with maximum of 7.5 on Booking.com or TripAdvisor, where today we have hotels that are highly ranked in term of quality. So today, yes, there is a possibility to provide the quality and to have the right people on board.
The Hospitality Channel will continue to share shows about staffing and recruitment. Look out for the next 10 industry experts to be announced as part of Hospitality250.
Hospitality careers can start anywhere but it is important to keep in mind were you want to get to. In this TV show Ziad El Chaar discusses why aspiring managers must understand return on investment
Hospitality careers and key competencies
Well, let me tell you from our side of the business, I cannot speak about the industry in total. But when you work for us in the hospitality sector, if you are in the top tier management then your main focus is to drive a return on investment for the people who bought that unit, they’ve put that unit in the rental pool and they are relying on us to give them an above average return. So if you’re coming in top tier management, even if you are in housekeeping, you need to think of how can I maximise the return to those people who bought those apartments – those hotel apartments from DAMAC. If you’re coming at a lower level and you’re aspiring to be in management, your main focus is to dazzle and please the customer, no matter what he asks for.
Keep browsing Hospitality TV for more videos discussing hospitality careers.
Hotel investment opportunities can come about locally or internationally but, as Chiheb Ben Mahmoud discusses in this TV show, it is currently more regional.
Hotel investment opportunities not badly affected by recession
The investment for hotels has not been drastically affected by the credit crunch, because it has always been, hotels have always been financed either on a more classical scheme, as opposed to residential and off plan sales. And so in that sense really it will not change much. It remains to a large extent a regional play, probably in the past it was more of a domestic play or pure local play, now it is more a regional. But apart from that, there has not been a significant change, there are no new entrants internationally to the investment scene, at least from the equity front. And perhaps there is less reliance on public funds, on government intervention.