The theme for the Future Hospitality Summit (FHS) 2023, taking place from 25-27 September at Hilton Abu Dhabi Yas Island in Abu Dhabi, is ‘Focus on investment’. The conference programme will comprise several content tracks under the main theme, including Investment, Operating Models, Innovation, the Future of Tourism and ESG. In the lead up to the event we asked several industry partners about their focus on investment in 2023 and beyond.

1 -The distinct nature of Hospitality Real Estate.

Hospitality investments should not be likened to residential real estate or other asset classes. This asset class may be more volatile but could yield higher returns, particularly in markets where relevant supply is lacking or where other sectors, such as residential real estate, are saturated. Hospitality real estate creates regular cash flow with lucrative exit options during strong market conditions.

2- Advocate Portfolio Diversification.

Investing solely in luxury might not always be the best strategy. Incorporating different hospitality categories, such as budget, midscale, upscale, and serviced apartments, into your investment portfolio is vital. Since demand, segmentation, and seasonality vary across types of hospitality and locations, diversification can help secure higher overall returns.

3 - Embrace the creative side

Budget and midscale hotels have shown resilience in downturns, thanks to stable or increased values resulting from affordable rates and lean cost structures. Similarly, serviced apartments, resorts, and lifestyle hotels maintain high occupancy levels and provide attractive cost structures. Embrace the creative side of hospitality real estate, including co-working spaces that revolutionize hotel and office design.

4- Refrain from cutting corners.

Value engineering is the key. Engaging a skilled project team is crucial to deliver a hotel asset within budget, meeting standards and timelines. An inexperienced team might save money upfront but could lead to costly mistakes, redesigns, and delays, which in turn can result in substantial revenue loss.

5- Explore branded residences but tread carefully.

Branded residences sold to third-party investors can provide additional financing for hospitality development, especially in locations where investors seek branded second homes. While these assets often command a premium, conducting a thorough market analysis is essential to ensure demand, follow local laws, and have a contingency plan if sales don't proceed as planned.

6- Don't overlook F&B and meeting spaces

In an era where experiences are valued as much as, if not more than, simple accommodations, Food and Beverage (F&B) offerings have emerged as game-changers in the hospitality sector. Not only do they serve the basic function of nourishing guests, but they also play a pivotal role in enhancing the overall guest experience. A curated culinary journey can highlight a guest’s stay, making it memorable and increasing the likelihood of repeat visits. They're not just spaces to eat; they're places where memories are made, deals are sealed, and celebrations are marked.

7- Maintain a long-term perspective.

Recessions and pandemics should not deter you from investing in hospitality real estate. These assets are designed to weather market cycles, transfer across generations, or change hands through transactions. They offer resilience during downturns and flexibility during market recoveries.

8- Leverage alternative debt, co-investments, subsidies, and incentives.

Debt has been a cost-effective option in many markets. However, with that changing with recent hikes in interest rates, venture out to alternative debt options, other forms of equity, and co-investment opportunities, in addition to subsidies, loans, and incentives (where they exist) provided by governments and funds to stimulate investment in tourism projects. These benefits may disappear once the market rebounds.

9- Invest responsibly.

As sustainability gains prominence, acquiring certifications like Green Key and LEED has become essential for hotels. These benchmarks not only symbolize environmental commitment but also resonate with the values of modern travelers. Green Key showcases a hotel's dedication to eco-friendly practices, while LEED ensures energy efficiency and reduced carbon footprints. Beyond certifications, sustainable investments lead to decreased operational costs due to reduced resource usage. But sustainability isn’t solely about the environment. It's also about a hotel's relationship with its community and its role in charitable endeavors. In a world where travelers prioritize eco-conscious choices, investing responsibly isn’t just ethical—it’s smart business.

10- Select the right operator.

Your decision should not just be based on the size of the hotel group, the fee structure, or attractive promises. It's about the brand's fit for the specific market and location and choosing a partner to optimize your real estate's value. The recent pandemic underscored guests' reliance on a brand reputation for assurance of operational standards and hygiene protocols, highlighting the benefits that come with internationally recognized brands.

As we look to the future, these guiding principles can help investors navigate the opportunities and challenges inherent in the dynamic and ever-evolving world of hospitality real estate.

11- Consider Resort Investments.

Resorts offer unique investment opportunities that city hotels may not provide while catering to the strong leisure market which has proven resilient post-pandemic. They cater to a different kind of traveler, often looking for a complete experience in one place: accommodation, dining, entertainment, and recreational activities. Well-placed and well-managed resorts can yield significant returns as demand is expected to remain strong. However, keep in mind that these types of investments often require higher initial capital and ongoing maintenance costs, and they can be affected more heavily by seasonality and changes in travel trends.

12- Keep an Eye on Inflation.

Inflation can significantly impact the value of investments, returns, and even the purchasing power of your potential customers. In an inflationary environment, operational costs such as wages, utilities, and food supplies can increase, thus affecting your bottom line. This is particularly relevant in recent years as we face increased construction costs and a talent shortage which investors and hotel companies continuously find solutions to with clustering, shared services, creativity, and innovation.

13- Be Aware of Construction Costs.

Construction costs are a crucial factor in new builds and renovations. They can fluctuate significantly based on various factors, including the cost of materials, labor, regulatory compliance, and even geopolitical issues. It's crucial to have a thorough understanding of these costs and to budget for potential overruns. When these costs are managed well, they can significantly affect the profitability and return on your investment.

14- Monitor Interest Rates.

Like inflation, recent hikes in interest rates are leading to a major impact on both the cost of capital for new projects and the attractiveness of real estate as an investment class. Investors with the healthiest balance sheets, equity propositions, creative conversion opportunities and bold exit strategies are the ones that are being able to stand out versus investors mostly reliant on debt. The current investment landscape will highlight who the solid investors are.

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