On unknown paths.

Thoughts about hotel investments in the future.

Do you know the feeling? You wake up and briefly have to consider what is currently going on in the world is just a bad dream. Yes, the human brain has a hard time nibbling on stunning developments before it gets used to new situations. When everything that was previously predictable and plannable loses its basis, it becomes difficult to judge what can still be relied upon. Who would have thought that at the end of 2019 it would be possible to consciously paralyze entire economies around the world and massively override fundamental rights? But as great as the shockis, which continues to this day: Humans are excellently equipped to deal with a changing environment.

The saying “The optimist is a pessimist with experience” sums it up. We have learned that, after revolutionary changes, complex systems regulate themselves in such a way that they find a new order and stability - even if there is a great deal of uncertainty in the transformation phase itself. I.e. in the third quarter of 2020, still in the orientation phase after the first lockdown, the stock exchange rose again. This behavior is still a good indicator of the mood of part of the economy because it reflects the overall attitudes of many market participants. But for long-term investments, the short-term fluctuations in mood on the stock exchange are unsuitable as a basis for planning the future. On what basis can you as an investor now make decisions?

For me, there is first of all the realization that nothing will be the same as it was before. That may sound trivial, but it should help not to measure the future against the previous. The second insight: Not only the direct, but also the indirect consequences are important. Only then do you recognize the opportunities in complex systems. For example, the pandemic measures have also led to a long-term change in awareness and behavior that will continue. This includes, for example, the breakthrough of the Internet in communication (video conferencing), or for shopping and working in the “home office”. Both in turn have consequences for the real estate market, directly and indirectly. The need for office space will presumably drop massively, because all employees will never work at the company location at the same time again.

It remains to be seen what concrete influences this fact alone has on the development of urban (and rural) real estate structures and price developments. In the pandemic, however, many companies have also found that most face-to-face meetings are actually unnecessary. You save a lot of time and money if you reduce business trips and use video conferences instead. Although the quality of meetings will suffer, the economy will take advantage of this increase in productivity and efficiency. A development that might lead to the final countdown of many business hotels. This is particularly likely to affect houses with inflexible management, renovation backlogs and in unfavorable locations, houses that have already struggled in recent years anyway. I consider the necessary market consolidation due to structural change to be inevitable. But in the end it enables other hotels to survive.

In the tourism sector, on the other hand - like relevant industry experts - I see a recovery until 2022. Perhaps there will even be a brief boom, as many want to fully enjoy their vacation again after a long period of restrictions. By cutting expenses - despite investments in their own living environment, as the furnishing industry confirms - a lot of savings were accumulated in private households. On the other hand, there will certainly be an increase in the number of unemployed, which has been curbed by short-time employment and other measures. Small and medium-sized businesses in particular were hit hard by the pandemic. This means that hoteliers in typical holiday destinations will also have to come up with something to counteract economic and social change with creative solutions.

In general, the hotel industry will continue to monitor short-term trends and megatrends very closely in order to react to them. It can do that and it knows it better than almost any other industry. But the changes are even more fundamental than what we are used to. In Part II of this blog topic, I would like to introduce you to a few of these trends, how hotel operators are already reacting to them or even shaping them and what effects this has on the valuation of hotel properties. I’d like to reveal this much at this point: What makes hotels immobile will continue to be valuable: the good location. At the same time, the hotel industry needs even more flexibility. And that goes beyond pure management and begins with a future-oriented "due diligence" when assessing the respective hotel property. You can find out more about this in Part II.