2020 was a testing year for the hotel market. Ongoing travel restrictions and other pandemic-related disruption triggered the worst year on record for global hotel performance. Occupancy rates fell to an all time low₁
A small proportion of hotels were forced to close their doors as the bottom line pressure became too heavy, whilst larger operators have stayed afloat through a combination of financial muscle, state support and direct liquidity injection by their owners.
But it’s not been all bad news. The closure of borders has brought with it a growth in domestic travel, helping to mitigate the 68% drop in European inbound travel in 2020₂. Driven by both necessity and choice, domestic travel has taken on a new lease of life.
Hotels have responded – including those in our portfolio, where we have four in the Netherlands and two in Germany.
As vaccine programmes take shape and a return to normality draws nearer, we consider the implications for the hotel market as Europe prepares for the summer ahead.
Despite notable progress being made with vaccine programmes – around 48% of Germans and 44% of the Dutch have received their first dose₃ – Europeans look set for another summer characterised by travel restrictions.
Even the gradual re-opening of borders fails to guarantee a meaningful uptick in inbound travel due to the fluidity of government guidance and the uncertainty that affords.
The U.K’s decision to advise against travel to Portugal, just three weeks after it re-opened and thousands of Brits flocked to its beaches, is a timely reminder of how quickly things can change. The financial and logistical commitments will be considered too much of a risk for wannabe holiday goers.
Governments will continue to approach the situation with a sizeable degree of caution, conscious of undoing the hard work of the last year and the impact that could have on public morale. Whether it’s a weekend away with the kids, a break from the home office or just the experience of new surroundings, pent-up demand will, on balance, be released in the form of intra-state travel.
Location, location, location
The last year has seen countries with a strong domestic source weather the storm to greater effect. The likes of Italy, Spain, the U.K and France have been able to tap-in to high demand for the staycation movement and are better prepared to undergo another summer of limited inbound travel.
The same can be said for the Netherlands and Germany, which enjoys Europe’s highest share of domestic travellers as a proportion of total visitation at 79.3%₄
Savills accordingly argues that its being one of the two largest suppliers of outbound travel puts it in poll position to boost demand even further by converting those travellers.
Countries heavily reliant upon inbound travel face a daunting summer unless the international travel landscape changes drastically, and fast. Oxford Economics predicts that the likes of Cyprus, Malta and Montenegro could see hotel stays fall by as much as 55% – 70% in 2021₅.
Adapting to change
But an attractive location doesn’t guarantee a hotel’s success. The ability to adapt has become a defining component of hotel performance, and those who have embraced the opportunity with open arms will be better prepared for the summer ahead. It’s something we’ve witnessed across our portfolio.
“Very early on, as we emerged from the first lock-down in Q2 2020, we identified the need for hotels to pivot their focus from their traditional marketing comfort zones, towards new channels to tap into the large and hungry domestic / regional market”, says Andrew Lambert, Asset Manager for our Netherlands portfolio.
Hotel operators have been forced to broaden their appeal, namely by shifting the focus from corporate to leisure in order to compensate for the collapse in international travel.
Family-friendly deals, weekend packages, free parking and other features typically associated with leisure oriented hotels have been introduced across our portfolio.
Alternative marketing platforms have also been explored, with the hotels promoted through the likes of Secret Escapes, Lastminute.com, Agoda and other holiday websites. They weren’t really on the radar of corporate minded hotels before restrictions were imposed.
Our portfolio is largely defined by a city, airport and corporate focus so this pivot has been a key priority. The Hilton in The Hague, one of our four hotels in the Netherlands and where demand has historically been driven by legal and corporate occupiers, has consequently seen a huge spike in domestic leisure customers and it’s a trend we’re seeing across many of our hotels.
A reduction in international corporate travel looks set to become a prevalent feature in the hotel market. Turbo-charged by a greater use of technology, the new perception of corporate travel and its necessity will become a legacy of the pandemic.
Rumours of its permanent end are step too far – there’s no doubt about that. It will always occupy a leading role in the hotel space, but viewed perhaps more as an option than a requirement. CFOs will be asking whether a flight to Beijing guarantees a better outcome than a call over Zoom.
“The positives of getting people within the same industry in the same place at the same time haven’t gone away. And while these moments may not be as frequent in the immediate post covid period as they were before, they will remain a valuable tool for global businesses”, says Andrew.
It is also important to note that a boost in domestic travel isn’t an entirely new concept. Take the Netherlands for example, where domestic holidays have been growing every year since 2006 and look set to increase further. The number of domestic arrivals has grown from 17.7m in 2006 to 25.8m in 2019₆ and estimates suggest they could reach 30m by 2030₇.
Similar patterns emerge across the data for most European countries. Perhaps the pandemic has served as a reminder that hotels have another huge market to tap into, and as a lesson that they need to remain conscious of the value of this market in the years ahead.
We’ve learned a huge amount about hotels over the last year. It’s very much a wait and see scenario for the summer ahead, but in the meantime, our hotels are better prepared than ever.
If you would like to hear more about our existing hotel portfolio, our plans for the sector in 2021 or about our services, please get in touch.