Pause or proceed? 2021 considerations for the hospitality sector
Turnkey hospitality solutions
Here are some key factors to consider at varying stages of the development cycle.
As 2020 got underway, the hospitality cycle was at the peak of expansion with relatively sound fundamentals, albeit slowing growth. Seemingly overnight, the industry enters a downward spiral which has never been seen before. Demand fell with no end in sight and new development had come to a halt.
The Covid19 crisis forced the hospitality industry to hit pause and think through next steps with limited or speculative visibility into what the future holds. Amid all this, developers were faced with a daunting decision about whether to proceed or scrap projects altogether. So, how do owners navigate the opportunity and risk to make an informed decision about whether to proceed with a planned project? Here are some key factors to consider at varying stages of the development cycle.
- Limited to no construction financing for the foreseeable future (six to 12 months)
- Equity is reserved for distressed opportunities
- Government restrictions and shutdowns pose significant risk to construction activity
- Potential supply-chain risk (related to materials)
Based on the current situation, the following are key factors to consider at each phase of the development cycle when determining how best to proceed.
Recommendation: Press pause and wait six to 12 months. Lack of visibility into recovery trajectory will make it near impossible to test feasibility.
Feasibility study complete, management and/or brand agreements finalised, financing in-place, but not yet under construction.
- Consider moving forward with planning and be among the first to open on the other side of the recession
- Explore opportunities to negotiate better terms and have your contractors sharpen their pencils
- Contemplate the solvency of partners in the deal to ensure the development decision still outweighs the risk
- Refine facility programme and design considering the anticipated ‘new normal’ re-evaluating public/function space capacities to allow for distancing; technology and automation features; and ventilation/air purifying systems.
For projects three to nine months away from opening, consider the following:
- In most markets, schedule is now dictated by legislation that stopped the work of ‘non-essential jobs’. For most, this means non-hospital construction was halted.
- Understand supply-chain issues and impact on opening. Can construction materials be delivered, and furniture, fixtures and equipment and operating supplies and equipment be received in a timeline that aligns with the schedule?
- Review the pre-opening plan, budget and marketing plan, adjusting appropriately for time delays
- Opening a hotel and ramping up to demand is challenging during strong demand periods. This is exacerbated during the low/no demand expected in the recovery. Owners need to consider when it is best to open their hotel; it might not be the first day the hotel can open, but when the market can sustain the opening. Demand should be forecasted (and stress-tested) to dictate when the market can support the hotel. Hiring and staffing should be reexamined based on current market conditions. Planning and reacting quickly is key to reducing weekly payroll burn during development.
For projects that are one to three months from opening, consider the following:
- Staffing: Rethink staffing guides and minimise labour costs
- Operations: What services can be outsourced to reduce liabilities and labour/training costs
- Mobilisation: Openings are typically supported with taskforce management teams. The question becomes how these crews get to the property and where are they coming from?
- Training: Determine how to conduct hiring, training and orientation with social distancing requirements
The above conditions need to be balanced with all the efforts and expense considered for your planning and pre-opening. Ownership needs skilled representation to coordinate multiple teams and evaluate decisions quickly and accurately to ensure the project does not become permanently shuttered and, when opened, is optimised to perform in the new cycle. TKHS can help support you in many aspects.
The end result gives our clients the benefit from faster decision-making, local expertise, competitive pricing and personal service (with a dedicated PM) – acquiring the advantages you would expect from a true worldwide hospitality logistics partner.
We welcome your interest and look forward to talking with you to discuss how to help you overcome the challenges ahead together.