Settling in to 2020, it is clear that innovation in hospitality and real estate is happening at a pace not seen since the rise of Marriott and Hilton. The big question is whether today’s innovative, grow-at-all-costs companies (WeWork, OYO, Sonder, etc.) will flame out quickly or create the foundation of a new generation of companies that will change the trajectory of consumer experiences in buildings for decades to come. It’s an exciting time to be a customer and somewhat unsettling to be an owner.
As a former real estate executive focused on innovation at a large, publicly traded company and now the co-founder of a start-up working on blurring the line between hospitality and home, I live in this changing world every day. Here is what I think is on the horizon.
Backlash from WeWork’s Failed IPO
Private investment money that was betting on high-growth, real-estate-heavy businesses will pull back. Thank you WeWork! This means some serious changes in business models that have high capital costs and systemic risks across real estate cycles (think long-term leases and build-out costs/furniture that can’t be financed). This will lead to consolidation and a flight toward capital-efficient operating models. This will be seen across all categories from furnished/short-term rentals to co-living, flexible office and retail.
Commingled and flexible space utilization will continue to be a major driver of new and better real estate products for consumers. For owners, being able to target customers across a spectrum of use cases presents a value in optionality (for furnished apartments, this means nightly, weekly, monthly and annual lengths of stay). Commingled assets are a sure way to optimize income per square foot and reduce volatility of cash flows. This opportunity exists because consumers have become more comfortable giving up exclusivity for better experiences or better prices (Airbnb, Uber, etc.). This will lead to downward price pressure for individual real estate products, which is great for consumers, but difficult for legacy owners of single-use assets that, due to design or regulatory limitations, are not able to participate in these new income streams. This also will lead to far more dynamic pricing across all asset types.
Tech-enabled services will continue to be part of an improved travel experience. Everything in life is becoming instantly attainable from your phone. This is so obvious it is almost not worth mentioning, but we have only scratched the surface of its impact. From the ability to get “roomservice” from a city’s best restaurants (Caviar, UberEats, Grubhub, etc.) to its worst bodegas (Postmates), the stay experience will continue to be built atop a number of partnerships instead of wholly owned restaurants in a hotel. This will change the commercial real estate for cooking (ghost kitchens) and need for proximity to shopping near homes (Amazon). The idea of paying for on-demand movies in a hotel room will be as ridiculous as shuttles to get to the airport. Be prepared for virtual-reality tours for large purchases as a tool used in conjunction with online reviews.
Demand for Variety
Consumer demand for a variety of real estate offerings will continue to grow. In the hotel world this means paying for what you need. Small rooms for single-night business trips (Yotel, Pod, Motto, etc.) and apartment-style accommodations for longer stays (Airbnb, Lyric, StayAlfred, WhyHotel). In office, this is found in the rise of co-working with flexible conferencing (WeWork, Industrious, Convene) and in co-living for flexible, inexpensive homes (Common, Ollie) for those in a transient time in their lives.
Some of these trends will be largely realized in 2020 or shortly thereafter, while others that require a change in ground-up development may be years from being a mass market. Either way, a diversity of products and experiences are coming for consumers. The chaos of this transition represents a huge opportunity for those ready to break with the status quo and a potential disaster for those who are unable or unwilling to evolve.
Copyright 2020 Questex LL. All rights reserved. From https://www.hotelmanagement.net. By Jason Fudin, WhyHotel.