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New operating company within Pandox!12Positive outlook
on many hotel markets4 The sharing
economy is growing fast8
S P O T L I G H T
Calculating a profitable hotel investmentHOTEL INVESTMENTS ARE OFTEN BASED ON THE WRONG ASSUMPTIONS
UpGrade Market information from Pandox.
Pandox – Excellence in hotel ownership and operations.
Economic activity, growth and increased employment levels are important drivers to increase demand within the hotel industry. And this is why the revenue improvements that we see in the hotel industry today are logical; an improved macro economic environment and global growth fuels the hotel industry.
At the same time, we can see how revenue streams increasingly come from new distribution channels. The majority of hotel bookings are done online today. Systems and knowledge of how to collect and structure crucial hotel demand information in order to move efficiently between different channels are increasingly important in order to achieve an optimal revenue structure.
For the hotel industry, the digital evolution has created a new landscape of how to market a hotel and acquire customers. And the evolution continues. What is the next step?
The change within the media industry can help explain the power of the digital evolution. When I were a teenager, there were two TV channels: TV1 and TV2. News updates was received once every evening, usually at 19.30. If you missed that broadcast, you had to wait until the next evening.
Today there are hundreds of TV channels. Many are niche stations for specific interests such as history or sports. The large traditional channels are challenged from all angles and have been forced to adapt programming as well as technology. News updates are available as events unfold. In addition, with streaming functionality, you can choose when to consume your media. A revolution! Today you choose according to your interests. Previously, repre-sentatives for the state controlled TV channels would choose what you watched.
The massive structural change within the television arena can serve as a guide to how the digital evolution is affecting the distribution landscape of hotel bookings. Just like in the TV example above, previously, there used to be few channels for booking, most often controlled by established hotel companies, or brands, as they are often called. Today, there are hundreds of ways to find, compare and book a hotel.
Who had heard of AirBnB a few years back? Rather few I would guess. Now, the company lists 700,000 bookable flats across the globe. Accommo-dation which is offered and booked by people who used to be faithful hotel guests and generally also loyal to their brands. Thus, changes in behavior as well as product selection are reflected.
This is what’s on the agenda at the next Pandox Hotel Market Day. What happens in the new media landscape and what conclusions can we draw for the hotel industry?
If we study economic cycles, the US is at the forefront. The main driver is the domestic market which has seen four consecutive years of positive devel-opment due to a stronger US economy. It follows the normal pattern: increased demand creates higher occupancy rates which in turn gradually pushes up the average price for the hotel rooms.
At the moment, a segment transition is taking place in the US where hotels at large destinations, such as New York and Chicago, are replacing budget guests with other groups of guests willing to pay more for the same product. An aggressive pricing strategy in combination with new capacity being added to the market is likely to have a negative impact on RevPAR growth in New York at the start of 2015. However, the trend is presently turning – prices are
on the up and profitability is increasing rapidly due to a more efficient revenue structure. This creates fertile ground for value growth from which follows increased liquidity. The most recent example is the spectacular acquisition of the classic Waldorf Astoria. The hotel was acquired for 1.95 billion US dollars. Equivalent to 1.4 million dollar per room. The sum does not include any reno-vation or development costs. In addition, the hotel is tied to a 100 year man-agement contract – 4 times as long as the normal management contracts within the luxury segment. The buyer is a Chinese insurance company.
Europe and the Eurozone is also experiencing a positive trend where the speed of growth is increased. The transient segment is growing which makes for good opportunities for a pick up during the autumn months. 2014 will be a strong hotel year.
The Scandinavian markets are also showing a positive pattern. Best in class is Copenhagen with a 5 per cent increase, but Stockholm and Oslo have also had a good start to 2014.
Gothenburg has had a large proportion of new capacity added, representing a 15 per cent increase since 2008. In a generally positive industry climate, Goth-enburg is predicted to drop its RevPAR by some per cent. The drop is smaller than feared due to a very strong September. Another market which faces great challenges is Malmö. A number of new large hotel projects will be completed within the next few years. About 1,300 rooms will be added, a 20 per cent increase in available rooms compared to today. For Malmö to retain todays Rev-PAR level, it will take an increase of 25 per cent in the number of sold rooms. One can also note that new capacity is continuing to flow into Stockholm.
So, how come new hotel projects are added in a city which already has over-capacity? Part of the explanation could be a misinterpretation of visitor num-bers. Often, there are reports of an increase in the number of sold rooms in a market, and many then draw the conclusion that profitability has improved as well. But this is rarely the case. More available rooms usually leads to increased demand – but also to a revenue per room decrease, often through lower prices. This has a great negative effect on profitability. Please see UpGrades article on correct revenue assumptions in new projects on pages 6–7.
A tip to those whose job is to decribe the hotel industry with the goal to see more hotels: Use relevant key indicators – don’t just look at the number of sold rooms – look at the whole situation. Include profitability, average price, segments, total accommodation revenues and, of course, other trends within the visting industry as parameters.
I tip my cap to Visita, the industry organisation for the hospitality industry, who ran a well organised campaign – the double whammy (Dubbelstöten) – during the latest election period and managed to rally a disparate industry behind some important questions. Well done!
On the sports front, we note that Skåne again takes the gold in football – for men as well as women! On the handball front, there is much to be happy about. Sweden’s handball ladies have qualified for the European Champion-ships in Croatia and Hungary. Matches start on the 7th of December and the team certainly have got something special going. The men’s handball team has a World Championship in January, played in Qatar, to look forward to. Sun and handball – almost sounds like the Åhus Beach Handball festival.
Yours sincerely, Anders
New times demand new ideas
Just a word
Address: Pandox AB (publ) P.O. Box 15 SE-101 20 Stockholm, Sweden Tel.: +46 (0) 8 506 205 50 E-mail: [email protected]
Visiting address: Vasagatan 11, 9th floor, Stockholm
Graphic design and production: Hallvarsson & Halvarsson
Photos: Ulf Blomberg, Peter Hoelstad, IStock et al.
Printing: TMG Sthlm, November 2014. May be reprinted only with the permission of Pandox.
Cover: Radisson Blu Bremen.
UpGrade can be ordered from Pandox at [email protected] or read at www.pandox.com
Pandox UpGrade Market information from Pandox – published approxi-mately three times a year.
Editors: Anders Nissen, Marika Hilldoff
2 MA RK ET I N FORMAT ION FROM PA N D OX
NEWSHotel world
November
Starwood goes keyless. Starwood has launched key-less room access in 10 of its hotels globally. Keyless entry via smartphone will be offered to loyalty pro-gram members, claimed as an industry first. Guests can wave past the front desk and go directly to their room using their smartphone. After one year in the making, SPG has launched the pioneer mobile key experience that makes key cards optional for travellers at 10 Aloft, Element and W Hotels around the world. How does it work? The guest simply needs to open the SPG App and hold their smartphone in front of the door lock to enter their room. A solid green light and vibrating buzz offers sensory alerts to open the door.
Pandox Operations proudly enters a lease with Grand Hotel Oslo! Pandox Operations has signed a lease agreement with Norwegian property company Eiendomsspar AS, who also owns 50 per cent of Pandox AB, to take over operations at Grand Hotel Oslo from March 1st, 2015. Pandox Operations are already running operations at 16 Pandox owned hotels, but is now taking its first step into becoming an operator of hotels owned by external parties. The Grand Hotel Oslo is located at the centre of Karl Johan, the main parade street in Oslo, and is the most famous and classical hotel in Norway. The hotel was inaugu-rated in 1874 and has gone through a number of reno-vations and modernisations since. The Grand Hotel Oslo hosts 292 rooms, including 54 suites, a large con-ference area and an exclusive Spa.
New hotel opening in Jönköping. Vox Hotel is about to open in the city of Jönköping, Sweden, on Novem-ber 1st 2014. The concept of Vox Hotel includes ideas about the future hotel experience, focusing on design and comfort. Vox Hotel has 143 rooms including suites and deluxe rooms.
June – July
Storebrand acquires Clarion Hotel Arlanda. At the end of a three month sales process, Swedavia signed an agreement to sell Clarion Hotel Arlanda to SPP Fastigheter, a subsidiary of Storebrand. The price was SEK 1.1 billion and Swedavia could record a capital gain of roughly SEK 350 million. Clarion Arlanda was inaugurated in October 2012 and boasts 414 rooms, 44 meeting rooms as well as two restaurants, all in direct proximity to the airport terminals.
Balder continues its expansion within the Gothen-burg hotel market. Previously this year, in March, Fastighets AB Balder acquired the hotel property that hosts Scandic Opalen in central Gothenburg. The purchase sum was around SEK 550 million and the property is on a long term leasing contract to Scandic. In July, Grand Hotel Opera was added.
September
Nordic Choice Hotels goes large in Stockholm City – with two brand new hotel concepts including 540 rooms. Earlier this year, AMF Fastigheter launched its mega project for a completely new cityscape around the Gallerian area in Stockholm city. The new cityscape – Urban Escape Stockholm – will be a combination of offices, hotels, retail, restau-rants, meeting places and service outlets. In Septem-ber, it became clear that the new operator for the hotels will be Nordic Choice Hotels which plans to operate a business hotel with a broader appeal as well as a boutique hotel, both under new brands. The hotels will have 340 and 200 rooms respectively. Connected to the hotels will be a 2,000 sq. m confer-ence facility which will also contain a Spa and a gym. The hotels are to be opened in 2017.
October
Hilton to sell Waldorf Astoria to Chinese Firm. Hilton Worldwide Holdings Inc., the world’s largest publicly traded hotel operator, agreed to sell the landmark Waldorf Astoria hotel in Manhattan to China’s Anbang Insurance Group Co. for $1.95 billion. Equivalent to 1.4 million dollar per room. According to a spokes-person, Hilton decided it was better to sell than take on the cost of renovations. The hotel is sold with a 100 years management contract – 4 times as long as the standard within the luxury segments.
Two new Comfort Hotel Xpress opens in Norway. Affordable rates meet urban design. Comfort Hotel Xpress Youngs torget on Möllergata in Oslo was opened in 2011 as the first in Nordic Choice’s new chain of budget hotels. In October, hotel number two and three were launched: Comfort Hotel Xpress Central Station in Oslo (168 rooms) and Comfort Hotel Xpress Tromsö (192 rooms). Modern technology is an important part of the Xpress brand and guests can already from day one check in and open their hotel room doors using their mobile phone, and mobile solu-tions will continue to play a large part at the new hotel. The chain is not yet present in Sweden, but the goal is to open 15 new hotels across the Nordic countries.
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INTERNATIONAL OUTLOOKThe US: Record breaking growth over the last 6 monthsThe US economy grew by 3.5 per cent, on an annual basis, during the third quarter which was better than expected and the last six months have been the best for over ten years. The increase in GDP was broad based with positive contributions coming from household consump-tion, exports, investments and the public sector. The property market has stabilised and prices are continuing to rise which means that many house-holds can leave the negative equity trap. Unem-ployment is on its way down and commentators predict a first raise of the Fed rate before year end. Wage development is still lagging though.
Deflation in the Eurozone is all too close – there are continued worries of weak development The autumn has so far been dominated by negative
news on the state of the Eurozone economy, but lately, glimpses of light have been seen. For instance, there are signals that the German labour market is improving, with unemployment already at the lowest for 20 years, and German GDP growth is expected to come in at around 1.5 per cent during the next two years. However, the solid development in Germany is not enough to carry the rest of the Eurozone. A recession doesn’t seem likely at the moment, but the clouds are still lingering. Outside the Eurozone, the UK economy is improving steadily with solid employment growth and a stronger pound.
Sweden, Norway and Denmark turn positive while Finland is stuck in recessionLooking at macro data, Sweden stands up well compared to other countries. Debt is lower, com-ing in at about 40 per cent compared to an EU average of 90 per cent, and employment has seen
a steady increase since 2010, partly due to older people working more. The development is mainly driven by solid growth in private con-sumption and high investments in property; how-ever exports are still stunted by the weak global economy. The Riksbank predicts that GDP growth will be 1.9 per cent this year, 2.7 per cent in 2015 and 3.3 per cent in 2016. Despite that, the Riksbank still elected to lower its repo interest rate to zero recently as the inflation target takes precedence in the near future.
The Norwegian economy has been a positive surprise this year, but for 2015 a slowdown is expected and the more long term future is plagued by uncertainty. The country is marked by low unemployment rates in combination with an expansive financial policy and low interest rates, but challenges remain in the shape of high wage levels, falling oil prices, a slowdown in the prop-erty market and decreasing investments within the construction and oil industries. A fall in oil prices has also led to a weaker Krone.
The Danish economy has seen five years of zero growth, but during this year things have turned towards the positive. Private consumption in combination with stronger exports are the strongest drivers of this. Households keep lower-ing their debts, while property prices in the larger cities are pointing upwards. Commentators believe that the Danish economy will keep grow-ing at close to the 2 per cent mark during 2016.
Finland still struggles with a strong headwind and is currently in its third recessionary year with
Positive outlook on many hotel markets
Focus on the market
The economic reports from the US continue to be positive, but sustained weak development in Europe coupled with a slowdown in Chinese growth act as drags on global growth. The inflation rate is near zero in a number of European countries which have pressed down interest rates to historical lows. Geopolitical turmoil in the Ukraine and in the Middle East, among other places, makes predictions uncertain, but despite all this a number of hotel markets still display positive trends.
Inter Continental, Montreal.
4 MA RK ET I N FORMAT ION FROM PA N D OX
RevPAR growth development
USA and Canada, %
FY 2011
FY 2012
FY 2013
YTD 2014
USA, total +8 +7 +5 +8
New York +6 +6 +4 +3
Chicago +9 +10 +4 +6
Washington +2 –1 –2 +4
Montreal +5 –2 +6 +11Source: STR Global (YTD September).
Europe, % FY 2011
FY 2012
FY 2013
YTD 2014
Europe, total +6 +5 +2 +6
London +8 +2 +1 +3
Brussels +4 –2 +2 +4
Paris +14 +9 +2 +1
Amsterdam +11 +0 +5 +5
Berlin –1 +9 +0 +4Source: STR Global (YTD September).
Nordics, % FY 2011
FY 2012
FY 2013
YTD 2014
Copenhagen +0 +5 +6 +5
Stockholm +1 –6 +2 +1
Oslo +2 –5 +1 +1
Helsinki +6 +4 –5 +2
Gothenburg +4 –1 –4 –2Source: Benchmarking Alliance (Copenhagen), Pandox MIS Sep (Stockholm/Göteborg/Oslo), STR Global (Helsinki).
weak economic development across the board. The country is reliant on a global recovery to kick in, for it to gain traction in exports. Commentators believe that GDP growth will stop at 0.5 per cent next year.
HOTEL MARKET OVERVIEWThe US and New YorkThe US remains to be the engine of global growth. Also the American hotel market continues its strong development with sustained growth dur-ing the last four years. This is a result of a stronger global economy but also due to limited added capacity. After Q3, US RevPAR growth hit nearly 8 per cent with both volume and price contributing.
During the year’s first nine months, New York has shown a relatively modest 3 per cent growth in RevPAR. An explanation can be the shift in guest segments which has been ongoing for a while, where the hotels are replacing budget trav-ellers with other guests willing to pay more for the same product. This aggressive pricing strategy coupled with added capacity in the market has had a negative impact on RevPAR.
Los Angeles and San Francisco, however, con-tinued on a previously strong trend line with increasing prices. Both cities have seen double digit RevPAR growth during the year. Also in Miami – one of the world’s most expensive hotel destinations – price continued to drive growth and the RevPAR increase reached almost 7 per cent at the end of Q3.
Europe Normally, Europe lags the US by 2 to 3 quarters in the hotel market life-cycle, which gives us hope for continued growth here as well. RevPAR growth in Europe after the three first quarters of this year came in at almost 6 per cent, but with considerable variation between regions. Hotel markets in northern Europe saw the strongest development; central and southern regions were stable while eastern parts generally experienced weaker prices.
Top of the class in Europe were Tallinn, Buda-pest and Dublin which all showed double digit RevPAR growth at the end of Q3. At the other end of the spectrum, we find Moscow which lost nearly 11 per cent in RevPAR as a result of drop-ping demand.
The Brussels hotel market was stable with Rev-PAR gaining 4 per cent for the year including Sep-tember. Growth was mainly driven by volumes but there was also an upward nudge in prices. During the third quarter, there has also been a sig-nificant increase in demand for weekend stays which can be seen as somewhat of a new trend, as Brussels traditionally is dominated by the busi-ness and meetings segments.
The hotel market in Berlin experienced a rela-tively slow start to the year but picked up during the second and third quarter. This was mainly driven by price but there was also a certain demand increase up until and including Septem-ber. Like Brussels, RevPAR growth came in at 4 per cent in the city and even though the number of larger conferences has been limited, the MICE-segment still shows a positive trend and the lei-sure segment continues to grow as before.
The NordicsThe Nordics were led by Copenhagen with a 5 per cent RevPAR growth at the end of Q3. The strong growth is mainly attributable to higher average prices and the fact that, since 2013, the city has seen little added supply. However, during 2015, a number of new hotels are expected to open their doors.
In Stockholm, the leisure segment keeps showing the best growth numbers. The business segment has recently joined up in showing simi-lar growth patterns, while the group and confer-ence segments segments still show negative numbers. During the year, another 1,000 rooms have been added on the supply side, but despite that, occupancy rates are up and RevPAR growth was 2 per cent for the first nine months, which means that the added capacity has been com-pletely absorbed by the market. Average price declined, mainly as a result of a larger proportion of leisure travellers who are mainly staying in the medium priced hotel segment. Prices at the top range hotels remain at last year’s levels.
The Oslo hotel market displayed strong Rev-PAR growth during the first quarter but that was
reversed in the second, due to timing effects related to Easter and the fact that there was no NOR/Shipping Event Week this year. At the end of Q3, RevPAR was up close to 1 per cent and, like Stockholm, leisure travellers were driving demand. The trend is that occupancy is driving a positve RevPAR and that the price is falling.
In Helsinki, the hotel market is showing a somewhat better picture than the Finnish econ-omy in general, despite a drop in Russian tourists and a relatively low level of domestic business travel. At the end of Q3, RevPAR growth reached 2 per cent, helped by an increase in both demand and price.
Hotel BLOOM!, Brussels.
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Trends
Correct revenue assumptions are crucial to assess profitability in new projects!
According to Visita, 18,000 new hotel rooms are required in Sweden up until 2020, mainly in the larger cities. This prediction is made mainly by projecting historical demand into the future and lacks any analysis of the developments of average price, segments or profitability.1. Our industry survives not only on demand, but
by a formula that includes average price as well as demand.
2. In addition, it requires sound knowledge of how the industry’s different segments will look in the future to be successful.
3. And finally, it is vital that the future hotel prop-erty owner has knowledge of what drives value in these types of properties and under-stands the differences between a hotel prop-erty and a traditional property.
Let’s go through these parameters one by one:
An ever increasing number of property owners, without prior experience of the industry, are showing an interest in, and are investing in, hotels. Reports from Stockholm Business Region and other organisations are predicting a future capacity shortage which is attracting new players into the Stockholm market. What is worrying though, is that many times there is a lack of comprehensive analysis behind these predictions and the reports are based on special interests such as the aim to make Stockholm look like an expanding region. By only looking at growth and demand figures for a destination and, without any further analysis, then translating those into a need for new hotels, is to overly simplify the situation – many more factors than just an increase in demand will decide whether the investment in a new hotel property will be profit able. Pandox UpGrade is here to clarify the situation.
1. Profitability is not solely created by increased occupancy! Location, location, location is a well known motto in the property industry. In the hotel industry we need to add RevPAR, RevPAR, RevPAR (revenue per available room). Higher visitor numbers and an increase in demand are obviously indicators of the attraction of a destination, but an investment case mainly based on a demand and occupancy increase misses the necessary average price parameter. To achieve solid profitability in a hotel property, it is vital that price and RevPAR also develop in a positive manner, but it’s not often that this is brought up when ongoing hotel devel-opments are discussed.
It is absolutely vital to combine solid occu-pancy numbers with a high average price to reach high profitability in a hotel property. Hotel experts agree that a high price is to be preferred to a high occupancy rate. A higher price drives higher profitability. The logic behind the argu-ment is that an ”averageprice-dollar” to a larger extent ends up as profit compared to an ”occu-pancy-dollar” as the latter requires more re-sources from operations in the shape of variable costs such as cleaning, staff, laundry, breakfast, commissions, etc.
A historical review… Since 2007, new hotel rooms have increased the total supply by 30 per cent in Stockholm. During the same period, demand increased by 25 per cent, which means that the added capacity more than covers the increased demand and that the new hotels have not been completely absorbed by the market. At the same time, we can see that average nominal price is the same as in 2007. This means that the average inflation adjusted price has decreased by almost 7 per cent. The decrease has also brought about a decrease in RevPAR. After the first six months of 2014, RevPar in real terms was more than 10 per cent lower than in 2007 which is also illustrated in the adja-cent graph.
Specific hotels may have effectivised their operations and thus managed to keep profitabil-ity at the same level as in 2007, but if one looks at the average numbers, a lower RevPAR means that the hotels profitability today is lower than it was in 2007. This important aspect seems to be com-pletely ignored in the advisory reports about the industry that have been published recently.
Average price and RevPAR in real terms Stockholm
Index (2007 = 100)
RevPARADR (real)
RevPAR (real)Linear trend ADR (real)
-07 -08 -09 -10 -11 -12 -13 -1480
85
90
95
100
105
110
80
85
90
95
100
105
110
Source: Benchmarking Alliance
Supply, demand, price and RevPAR (indexed and inflation adjusted)
ADR 12M, index (2007 = 100)
Gothenburg Stockholm Malmö
-07 -08 -09 -10 -11 -12 -13 -1480
85
90
95
100
105
110
80
85
90
95
100
105
110
Source: Benchmarking Alliance
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2. Guest segments are changing in the cities: it’s not new business hotels that are missing!During the last years, demand in the Stockholm market has increased in every segment apart from the conference segment. The greatest increase can be found in the leisure segment which is a clear trend that we have observed for some time. In contrast, the increase for Group travel was only marginal. A similar shift in guest segments seem to be taking place in Gothenburg and Malmö. These segment changes have brought about a downward price pressure as an effect of the fact that leisure guests are more likely to choose lower priced options. Furthermore, the additional capac-ity added in recent years has contributed to the downward pressure as well as increasing competi-tion. The trend is most obvious in Gothenburg and Malmö, with weaker growth during the week while the weekends have seen stronger growth, thus the negative effects are mainly hitting busi-ness and conference hotels.
As a hotel property owner, it is vital to have knowledge of the market in which one operates
and to closely monitor market trends. This is another important topic which is nowhere to be seen in the industry reports.
3. The uniqueness of the hotel property market: demands active ownership and considerable investments.There is a real risk that new players in the industry underestimate the uniqueness of hotel properties. The property market and the market for hotel properties are completely different industries with different drivers and different processes to achieve value growth. The hotel property market demands a completely different type of active ownership than the traditional property market. Simply put, one can say that the focus in the hotel industry is to develop hotel operations while in the rest of the property sector, it’s about building development.
The industries also differ as far as agreement structures. In the hotel industry, an active cooper-ation between the property owner and the opera-tor is needed and it requires both to be highly engaged. For this to work, turnover based rent
agreements, where the two parties share in the upside as well as in the joint risk for a potential decrease in value when a hotel does poorly, are imperative.
It is reasonable to assume larger investment costs in a hotel property than in an office bulding. Historically, the operator has shouldered most of the costs for development and refurbishment of the hotels but present agreement structures demand that the property owner takes on more of the investment costs and share the risk. So called, ”Triple-Net” agreements where the leasee is responsible for all the upkeep is practically non-existent within today’s hotel industry.
In conclusion, we can see that a predicted increase in demand is not enough to motivate a decision to invest in a new hotel property. Detailed knowledge and understanding of aver-age prices, market development and actual hotel operations are at least as important and must not be overlooked. And this is something that most industry reports published over the last years are indeed overlooking.
Converting offices into hotels – a growing trend in SwedenA trend in the office market in Sweden is that large companies relocate to premises outside the city centre to lower their costs. The companies shy away from expensive, closed office spaces to more open plan, flexible, space efficient or activ-ity based solutions. Examples of that in Stock-holm are Swedbank’s move from the inner city to northern suburb Sundbyberg and Vattenfall merging three offices into one at Arenastaden in Solna. This trend has led to high vacancy rates in traditional, non-flexible office properties which in turn has opened up the possibility of converting offices into hotels; about 40 per cent of the hotel rooms that have been added in Stockholm city centre over the last ten years come from office conversions and the trend is gaining.
Normally, offices are more profitable than hotels! To convert a previous office building into hotel rooms is normally very costly and sometimes more expensive than building from scratch.
To build a hotel room carries large costs for bath-rooms, interiors and technology. Compared to newbuilds, it is often more difficult to manage the tender process at an early stage which can lead to a lot of costly additional work. In most cases, it is also difficult to convert a space as efficiently as when building from scratch, which also adds to the total price tag.
A calculation...A simple calculation shows that an average existing hotel property in Stockholm City covering about 10,000 sq m with 180 rooms has an estimated value of about 2 million SEK per room. This is based on assumptions on price (SEK 1,200 per night on average), occupancy (72 per cent), property related costs, deductions for FF & E (4 per cent yearly) and a market- average yield figure. The equivalent room is estimated to cost 2.5 million if built today, based on average estimated costs for land, construction, interiors, etc.
The equivalent ball park value of the average office property yields a 35 per cent higher num-ber than a hotel property using a calculation based on a 6 per cent vacancy rate, SEK 3,750 rent per year and sq m and yearly running costs of SEK 300 per year and sq m. The office building is assumed to be equal to the average hotel prop-erty in the sample above in terms of size, location and yield.
It is, in other words, very difficult to make the financial case for converting an office building into a hotel. For the conversion to be profitable it often requires that the original office building has a much higher vacancy rate than the average. Another important success factor is that the pro-ject can include a significant amount of new floor space or a much more efficient use of the space. Finally, it is necessary that the property owner manages to create a new hotel concept which adds something fresh to the market, such as an attractive compact hotel.
Hyatt, Montreal
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The Sharing Economy is here to stay
So what exactly is the Sharing Economy? Wikipe-dia defines it as “a socio-economic system built around the sharing of human and physical resources. It includes the shared creation, produc-tion, distribution, trade and consumption of goods and services by different people and organisations.”
Since the dawn of time, people have enjoyed sharing and in recent years the internet has cre-ated improved possibilities for collaborating and sharing through a variety of web-based services.
A successful example of this is Uber.com, a car sharing service founded in 2009 (Lyft.com and Sidecar.com are others). Rather than renting a car through a traditional car rental service, users use the Uber app to get connected to a driver. Cus-tomers use the app to request rides and track their reserved vehicle’s location. At the end of your ride, the costumer can rate the driver and the driver can rate you – as a customer!
Uber’s tremendous growth clearly demon-strates the growing interest in sharing rather than buying and is a typical example of the Sharing Economy.
The term “the Sharing Economy” is vague enough to encompass widely diverging activities. Listed below are a few examples of other services, all offering a remarkable experience which you cannot buy for money!
• AirBnb: short-term apartment and room-rental service from local hosts in 190 countries. To market your apartment is free. Instead, AirBnb charge the advertising owner around 3 per cent of the booking fee and the guest between 6 and 12 per cent depending on the price for the booking.
• Yerdle: online marketplace for bartering goods• Zilok: lets people rent their household tools
and goods to strangers,• JustPark: enables people and companies to
match their empty parking spaces with demand from drivers.
• DogVacay: finding local pet sitters when you’re off for vacation
• Coachsurfing: let travellers stay in strangers’ homes for free
• EatWith: invites you to dine in homes around the world and enjoy homemade cuisine.
• Task Rabbit: an online and mobile marketplace that allows users to outsource small jobs and tasks to others in their neighbourhood.
Trends
Less status in owningAccording to the think-tank LS:N Global, owner-ship is receding as an ideal across sectors and cate-gories. To mark value we instead share, rent and borrow products, creating new systems of value and worth in the process. This is also happening in terms of trust, reputation, integrity, even in terms of how we value and market our privacy and personal data. The think tank believes that when we use platforms such as Uber or AirBnb we are moving from ownership to access, from established systems to informal contingent rela-tionships. Below, a few aspects on why sharing is becoming so popular:
Anti-ownership Society. Today’s adult consum-ers, who grew up in boom times and have had to relinquish mass consumerism during the reces-sion, have developed a stoical attitude towards ownership.
Always accessible. Today, professionals at all levels of the economy are expected to be responsive at
A growing trend today is the concept of sharing products and services – rather than purchasing and owning – a concept known as the Sharing Econ-omy. Fuelled by increasing internet accessibility around the world, a wide range of new services are taking off, enabling people to, for instance, borrow or rent a privately owned car or room in a foreign city, share gardening tools with neighbours or find a local pet sitter. UpGrade has had a closer look at the Sharing Economy and at how it will affect the hotel industry.
a moment’s notice. The boundaries between home and work have never been less clear. This has prepared us to see our homes as part of the economy, creating an opening for Sharing Econ-omy companies that monetize domesticity.
New rating systems are encouraging consumers to put more trust in each other rather than com-panies as providers of goods and services. That’s why reciprocal rating systems are key! (used by both Uber and AirBnb).
Exceptional growth thanks to strategic partnerships and win-win concepts...Another success factor of the start-ups in the Sharing Economy in general, and for UBER specifi-cally, is the cutting edge technology which cre-ates a platform where drivers, passengers and companies can partner together. Clearly this fills a big gap in the market! The company also uses smart and strategic partnerships in marketing. For instance, what about these examples taken from UBER’s own blog where you can shop online and get free delivery from a private driver or try out the new hyped Tesla car? You can pick an eco-friendly car, decide the driving-route yourself, and share the costs with your friends and, of course, the best is that the price is far below normal taxi fares and already indicated before the journey starts. From the drivers’ perspective, the no-cash deal limits the risk for robbery and there is no risk of the costumer running away from the bill. From UpGrade’s perspective, the advantages seem to be numerous.
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... but not everybody is happy!The clash between established institutions and Sharing Economy start-ups is most likely only at the beginning. In May 2014, at the Wired Next Fest in Milan, angry taxi drivers shut down a planned speech by an Uber representative. Lon-don taxi drivers protested against unfair competi-tion from Uber in June and September. Undaunted, Uber CEO Travis Kalanick told an audience at the Royal Albert Hall in October that his company could remove 1 million out of Lon-don’s 3 million cars off the roads if 100,000 Uber drivers were allowed to take their place.
Obviously, this threatens traditional taxi com-panies. In Germany and Belgium opponents have managed to prohibit Uber taxis and the business is not legal at the moment. Taxi drivers and taxi companies believe that ride-sharing companies engage in unfair business practices and compro-mise passenger safety and the unions calls the industry “grass-root economy” and “anarchic form of capitalism”. These actors will most likely con-tinue to fight back in the foreseeable future and of course this might be a threat to Uber: If a city wins one of the lawsuits against Uber for illegal cab practices, the court precedent could be damning to the entire business model.
AirBnb has also been met with protests around the globe. In Barcelona for instance, the company was fined for breaching local law which states that any flat rented to tourists must be reg-istered with the Tourism Registry of Catalonia. Regional laws also prohibit the renting out of rooms in private residences. The fine was AirBnb’s first in Europe.
Impact for the hotel industryAll the indications are that we will see more of the Sharing Economy and it will be especially inter-esting to follow the impact of AirBnb on the hotel industry. The value of the company is estimated at approximately USD 13 billion according to the Wall Street Journal in October – higher than most hotel companies!
Of course, there is some competition with similar strategies, such as Flipkey, Roomorama and Homeaway/VRBO but these are not any-where near AirBnb in size.
Today AirBnb primarily attracts the leisure trav-eller and only around 10 per cent of the guests come from the corporate business segment. This share will most likely increase, particularly since the company recently entered a partnership with Concur which has a corporate focus.
With this in mind, and the fact that AirBnb is expected to grow in the luxury segment, UpGrade believes it is time for hoteliers to become more observant to new travel patterns and which kind of experiences attract which different target groups. And maybe, if you look carefully, you might even discover that there is such a thing as a free ride or lunch!
Forget everything you thought you knew about being old, or even about age in general. In the society of the future, age isn’t just a number – it’s flat! You’re as young as you feel, young at heart… Yet these sayings, however hackneyed, point to an aspiration that is becoming a reality. People are living longer. They are retiring later – or not at all. They are healthier. And also they simply don’t look, act or feel old.
During an interesting trend briefing in London, the consulting group, The Future Laboratory, delivered a study on the Flat Age Society, a group of consumers aged over 50, whose increasing spending power and prominence means that the hotel sector and the brands should put more focus on them.
According to the study, the world is now seeing that chronological age is becoming com-pletely irrelevant. This is about a mind shift that sees the years after 60 as ones of possibility, where re-engagement, exploration and expertise can be re-interpreted and re-applied.
A world where age doesn’t matter The youngest Baby Boomers are turning 50 this year, while the first wave of that generation is reaching their 70s. Baby Boomers represent about a quarter of the population in the US, the UK and Australia. And that is just the beginning. People are living longer and the proportion of the population aged 60 and over in developed regions is projected to reach 34 per cent by 2050, according to the UN.
Today’s 50–70-year olds think very differently about money than previous generations. Polling suggests that three out of four Americans aged 57–65 still regard themselves as middle-aged or younger.
Energetic, optimistic and future-facing, Baby Boomer consumers are creating a world where age doesn’t matter – the flat age society. Instead they are starting successful businesses and are
moved by their interests, passions and ambitions, just like everyone else. Mem-bers of the Flat Age Society are technol-ogy-savvy, love luxury and are interested in healthy and organic food. Flat-Agers are engaged consumers who are more likely than any other age group to travel, buy a car or donate to charity. They have it, and they are used to spending it. In less than five years, 50+ consumers will have 70 per cent of the disposable income in the US, according to the study.
In this world – where Flat-Agers are revving up rather than slowing down – the term ‘old’ is dead and gone. In its place, a new age is being born.
THE FLAT AGE SOCIETY
A few tools to embrace this new Flat Age society:Get savvy. Youth isn’t where the growth is anymore. The Flat Age is where the consumers are.
Value the sustainable. Give Flat Agers the luxury products that they can feel good about.
Advance tech. Boomers want devices that help them to thrive and connect to the world.
Show beauty. Celebrate 60+ people in campaigns, ads and editorials.
Put design first. Great design is the key to making products that empower Flat Agers.
Make it easy. Don’t ignore problems like health issues. Solve them with great ideas.
Embrace romance. Flat Agers are splitting up and hooking up. Help them to get busy.
Boost wellness. The market for 50+ mental and physical wellness is booming.
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High investment activity results in many reopenings in the Pandox portfolio!
Radisson Blu Bremen, 235 roomsThe Grand Opening Event for the new restau-rant and bar “THE L.O.B.B.Y.” at the Radisson Blu Bremen in April was a big success! Over 350 people, press and celebrities were all excited about the modernized hotel and the new, trendy restaurant concept inspired by the American steak and burger tradition. The clean lines, warm colours and open-plan layout summarises a design that creates a feeling of Hanseatic “easy living”.
See also the cover photo.
Holiday Inn Lübeck, 159 roomsA full renovation of Holiday Inn Lübeck was com-pleted at the end of May. The hotel has received a new design concept and an atmosphere of well-ness with the aim to create a “home away from home” for the guest. The new restaurant Kochwerk Lübeck, which opened already in October 2013, has received a very positive guest response and the hotel has also received its official rating as a 4 star superior hotel.
Activities in the Pandox sphere
Rebranding and repositioning projects completed at three hotels in Germany As the commercial conditions to continue with the previous operators were not in place, Pandox added three hotels in Germany to its own opera-tions in 2013. In connection with the takeover, the three hotels were re-branded to Radisson Blu Dortmund, Radisson Blu Bremen and Holiday Inn Lübeck.
Since Pandox took charge of operations much has happened! Detailed development and restructuring programs, as well as a new busi-ness plan including a new flexible organization, were initiated in cooperation with the new hotel management.
During 2014, renovations were completed at all three hotels. The renovations included a com-plete upgrade and refurbishment of all rooms and bathrooms, the reception, conference facili-ties and public areas, as well as a brand new F&B concepts. The hotels also enjoyed a boost on the technical side including a modernization of IT and TV systems.
Here you can enjoy some inspirational sto-ries and event pictures from our renovated German hotels!
Radison Blu Dortmund, 190 roomsStyle, simplicity and elegant design characterize the interior of the new Radisson Blu Hotel, Dortmund. In just five months, more than five floors with 190 rooms, corridors and guest areas have been completely refurbished with the hotel still up and running. The complete renovation was finalized this summer.
The hotel attracts both business and leisure travellers and even famous Bundesliga and Champions League football teams stay here on a regular basis, including star players and coaches such as Christiano Ronaldo and Carlo Ancelotti of Real Madrid. You are also welcome to visit and maybe get a chance to meet the stars! :)
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The Distribution Event Pandox attended the annual Distribution Event held in London in September. The program featured distribution challenges and opportunities the industry is facing: • What adds more value to a hotel, a brand or
an OTA?• How should hotels use big data to enhance
the customer experience? • How could the development of “the internet
of things” change how hotels operate?
The audience quickly learned from the first speaker that traditional hotel chains are being outspent by OTA’s in advertising significantly. Credit Suisse reported that Priceline spends approximately 6 times as much as IHG on advertising during 2013 and this is about to increase. It was also reported that OTA’s are far superior in internet technology and user friendliness com-pared to hotel chains. Due to this the hotel brands have to find different ways in order to add guest value for them to stay loyal. One could be that if the reservation is made through the hotel’s own system or by a member of a loyalty program, then then free Wi-Fi will be provided. UpGrade’s view: Free Wi-Fi is crucial and this is not enough to attract guests through their channels as this is not a service but a must. Worth mentioning – Priceline announced that they spent 700 million USD on marketing in Q3 – it is impossible for hotel chains to compete at these levels.
The Internet of things covered how smart phones and wearables could change the hotel experience. The airline industry has adapted the use of smart phones apps for boarding and for checking in to a greater extent than hotels, but the hotel industry is catching up. Smartphones could in a near future be considered industry standard as your room key and your primary contact in handling your check in and check out. But what if your iWatch measures what mood you are in and the room lightning and temper-ature will adjust according to your state of being? What if your wearable can detect if you are jet-lagged and the hotel room shower will infuse vita-mins for your morning shower for you to get back into the game, your wearable will tell you what to order on the room service menu depending on your vitamin balance? For the business traveller, will manual check out be a sign of poor service if it is a time consuming process? UpGrade’s view: UpGrade welcomes the use of technology in hotel operations but as an owner one must ask, who will invest the money in the technical hardware: the brand, the operator or the owner? The guest will demand more and more technical solutions but who will sign the check? If different brand uses different systems, what will happen at a potential rebrand?
...Now, what is Your view? Please send your comments to UpGrade:[email protected]
Hotel industry meetings
Report from three European events
HotCop CopenhagenPandox attended the annual industry meeting HotCOP in Copenhagen earlier in 2014. Much of the Scandinavian hotel industry was represented, brands, opera-tors, consultants, investors and lenders, and a wide range of topics were covered. UpGrade has chosen to report on two of the panel discussions.
The first panel comprised of Motel One, Scandic and Rezidor discussing “The role of the brands in the future”. Some of the views were that in an ever changing distribution landscape the role of the brand will be more focused on the hotel oper-ating side, being an efficient operator will be the most important factor instead of focusing on being a “topline distributor”. Another view expressed the importance of a large geographical brand presence to be able to attract brand loyal guests and international travellers when they visit a specific location. The changing demographics were explained as the main reason to many brands multi-brand strategy. UpGrade’s view: The industry is seeing an increas-ing differentiation between hotel brands and operators; hotel brands are turning into media companies focusing on top-line distribution and
operators are overtaking the position of the “bottom line operator” that hotel brands histori-cally controlled.
The second panel discussion was “Develop-ment Trends: Which Seg-ments will dominate”. The panel was comprised of 25 HRS Hotel, Marriot International and HTL. The discussion turned from the original subject to “Which definitions will dominate”. What is a lifestyle hotel, a boutique hotel, or a design hotel? The expression have been so diluted and used in so many different contexts so it is hard for the guest to know. This scenario is elevated when guest reviews use their own interpretations describing the hotels as they see it facing the risk of going against the hotel’s own communication. The panel agreed on that the emergence of innovative products such as HTL, Citizen M and 25hrs are due to the changes in demographics and that there have been room in the market for these types of products. UpGrade’s view: If this development trend con-tinues will this change the hotel landscape where hotels move either towards more luxury or more tech-savvy, no thrills hotels (low cost vs luxury) – what will happen with traditional mid-market hotels?
LSN Trend Briefing Pandox attended the semi-annual LSN Global Trend Briefing in London in October. LSN Global is an insight and trends network focused on lifestyles and consumer needs and behaviours. The title of the half day event was the “ME-conomy”. LSN Global covered three macro trends: “The Sharded Self”, “Awakeing Tech” and “New Value Economy”.
First, “The Sharded Self” gave us insight in how social media is changing our personalities and gives us the ability of living multiple online self’s in multiple digital environments. To some extent social media have made us all entertainers with a digital audience. The development makes our personality stretch and as LSN Global puts it we become “Elasticated Personas” – where we are happy to stretch the truth and ways of pre-senting ourselves with-out believing that we are cheating on others” and changes the way we live “Continuous Partial Living – where we live multiple lives and personali-ties offline in a way that is increasingly vicarious and peripatetic”. UpGrade’s view: Make it a share friendly hotel! Provide features that are instagrammable etc!
Second, “Awakening Tech” covered our increased usage, dependence and border line obsession with technology and the risk that we might lose our humanity in the process? How can we find a way to benefit from technology in our
daily life to a greater extent than airline check in, news reading and directions and to avoid neck problems from iphone obsession and instagram addiction? For example as LSN Global showed “Emos – where wearable technology extends beyond calorie-counting to monitoring human emotion” and “Online Escapism – where brands offer consumers dream-like digital experiences”. UpGrade’s view: Should the front desk agent through his Google glasses be able to see the mood of the guest on arrival? Would you like your room service to be delivered by a robot as in Aloft Cupertino California?
And third, “The New Value Economy” covered the development of the Sharing Economy and how we share, rent, borrow and creates new sets of values and worth across numerous industries. We do not own our films on Netflix and we do not own our songs on Spotify, we are paying for the access to them. New sets of values for “new currencies” are also developing sometimes shaped in the form of minutes and hours. How much is one hour of your profession worth? Would you be able to trade one hour of your pro-fession for one hour of carpentry? LSN Global covered several aspects of this macro trend including, “The Conspicuous Access Generation – why accessing a brand, product or service is more important than owning it” and “Sharenomics – the value and financial worth of peer-to-peer net-works in a post-recessionary world”. UpGrade’s view: Understanding the consumption behaviors among different lifestyles and ages is the key to understanding your guest and proba-bly some of the success factors behind AirBnB, Eatwith and Über etc.
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On stage: Bente Brydegaard Johansen, GM of First Hotel Copenhagen and Staffan Olsson in the event in November.
NEWS FROM THE WORLD OF PANDOX
Read more news at www.pandox.com
13Pulsions – @BLOOM!Hotel BLOOM! had the pleasure of welcoming Manuel Murillo, aka 13Pulsions, an Italian/Colom-bian graffiti artist living in Brussels, when he was commissioned to design one of the boardrooms at the hotel. Murillo is a well reputed artist who expresses himself through paintings, fashion crea-tions and elements of decoration, using acrylic colours, sprays and markers. His work is trendy and full of life which perfectly matches the image of BLOOM! On the day he completed his work, the hotel hosted an opening cocktail event, attracting lots of people from Brussels as well as a number of our guests. Needless to say, the hap-pening was a big success!
Hotel Berlin, Berlin Social day at the Björn Schulz FoundationThe Björn Schulz Foundation offers advice to fam-ilies with terminally ill children and facilitates after-care treatments as well as organizing both medical and social support. This time, the founda-tion was not a guest at Hotel Berlin, Berlin, but instead acted as the host at their own premises with a team from Hotel Berlin Berlin there to visit and help out. “I wanted to personally get on board and do something good for this foundation” said General Manager, Jan-Patrick Krüger and sooner said than done – 12 area managers from the hotel, and Patrick, all had their hands full with planting 17 window boxes full with fresh flowers and pro-viding a new sheen to the garden furniture.
The Hotel, Brussels Finalist in the European Hotel Design AwardsThe Hotel, Brussels is one of five finalists in the reno-vation category of the 2014 European Hotel Design Awards, an event held by Sleeper Magazine.
“The overall quality of entries for this year’s European Hotel Design Awards was the highest I have seen in ten years on the judging panel,” says Matt Turner, Editor-in-Chief of Sleeper Magazine. “The voting to select the final five in each category was very close and the shortlisted entries can all be proud to have made it this far.”
The winners will be announced on November 25th.
Professional Handball Event at First Hotel Copenhagen Over 200 enthusiastic partners turned up at First Hotel Copenhagen for a professional handball event with delicious tapas, chocolate fondue , beer and champagne. The event boasted a truely impressive lineup of prominent names, among others the Swedish national team coach as well as the Director of Sports at Pandox, Staffan Olsson, KIF Kolding København stars Kasper Hvidt and Kim Andersson, the up-and-coming player Magnus Landin, handball icon Louise Svalastog-Spellerberg from København Håndbold and club director and CEO Kim Mikkelsen.
“It has been a real top performance. I am happy to provide the facilities and to create the atmos-phere that unites handball in Copenhagen for a night”, says the host of the event hotel GM Bente Brydegaard Johansen of First Hotel Copenhagen.
New operating company!Pandox has expanded its business by establish-ing its own hotel operating company, Pandox Operations as a consequence of changes within the industry. The global hotel industry has gone through major structural changes over the last 15 years. A majority of international hotel com-panies have changed their business model and become pure ”brand companies”. Traditional hotel companies with a clear focus on operative issues have become fewer. Another trend is the fast consolidation taking place within hotel operations – the large have grown larger.
“We can see the need for greater flexibility and for having the possibility to choose different strate-gies for different situations, both as an owner and as an operator”, says Pandox CEO, Anders Nissen in a press release. “By establishing a company 100 per cent focused on hotel operations, we achieve exactly that. Moreover, today we can see that a number of players are turning back from the strategies to focus on either brand or opera-tions, towards a broader business model where they can control a larger part of the value chain. This has also lead to new commercial opportunities”.
The mission for Pandox Operations is obvi-ously to run Pandox-owned hotels, but also to enter into lease agreements with external property owners when commercial conditions are in place.
Initially, Pandox’ sixteen established hotel opera-tions has moved to Pandox Operations as well as the newly signed external lease contract of Grand Hotel Oslo which creates a hotel portfolio cover-ing 5,245 rooms across seven countries.
A natural step in this process has been to update and change Pandox’s graphic profile in order to obtain a clear distinction between Pandox AB and Pandox Operations. With different logotypes, the division of the two companies will be significantly more evident to our stake holders.
Pandox Operations: Number of hotel operations: 17 Countries: Norway, Belgium, Germany, Denmark, Finland, Canada and the BahamasTotal number of rooms: 5,245Employees: Approx. 1,600Turnover: Approx. 2 billion SEK (Euro 220 M)
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