11 SEP 2019
Are hotels leading the way or following other sectors in their use of space?
By Remy REIN MRICS, senior lecturer and Sebastian SMITH and Jason MARIN, Masters students from the École hôtelière de Lausanne
Several recent reports show the astonishing growth in self-employed workers, contract freelancers and consultants. According to Statista, 10.3% of the working age population is involved in such entrepreneurial activities. Alongside this, project task forces are becoming more and more common, and companies are starting to become more agile in their operations. This all has had a marked impact on traditional office space. For example, ING's agile transformation started with the 3,500 staff members at group headquarters.
We invested in tearing down walls in buildings to create more open spaces and to allow more informal interaction between employees.
former chief operating officer of ING Netherlands
"We have a very small number of formal meetings; most are informal. The whole atmosphere of the organization is much more that of a tech campus than an old-style traditional bank where people were locked away behind closed doors." added Schlatmann.
Many large corporations are also looking to outsource their office space and rely on outside workers to get the job done, taking advantage of companies such as WeWork who are creating shared working spaces, off-site and off-balance sheet for the companies partnering with them. WeWork and other co-working operators rent space in prime locations, add new features such as cafes, shared spaces and offices and lease them out at higher rents, looking to gain on the rental uplift.
This trend now seems to be spreading into co-living and many are looking to move into this segment; companies such as Co-Living, Common and Ollie amongst others. It seems that the traditional commute to the 9-to-5 workplace is changing and business needs are evolving,
The hotel industry from the 50s to the 90s was into high standardisation. It was the start of the mega-chains such as Hilton, Holiday Inn and Novotel, where all the rooms were the same, the service became standardised, offering the same breakfast, the same salads, the same menus in their brands, copy-pasting all over the world. Their main business model being asset heavy, owned and operated.
Since then, the industry has adapted to several different disruptors and brought to market solutions which cater more closely to what the customers want in different parts of the world. The rise of Boutique hotels such as Kimpton, W, Pod, Design and Morgan has begun to offer diversity and hyper segmentation, in response to the varied expectations of individual client segments.
More recently, the mega-brands have begun introducing and acquiring a much more diverse product offering, including short to long business stay (Aparthotel) and vacation rentals and embarking in the home sharing economy after seeing huge disruption from Airbnb. Homes & Villas by Marriott and Accor's acquisition of One Fine Stay being examples of the industry's adaptation to this trend.
During the same recent period in order to concentrate on their core business of "servicing the client", while also under pressure from shareholders, hotels companies have become asset light and found growth through new business models such as variable rents, along with a plethora of management and franchise contract variations.
On the other side, real estate investors have gone from a hotel fixed leased contract to an owned and externally managed asset contract. This evolution has allowed the hotel real estate owner to grab the largest share of the operational profit creation by the assets and limit risk through more and more sophisticated contracts.
Companies have already entered a phase of divestment and gone asset light. The business model is mainly with a lessee with fixed leases. However, they pressure the real estate owners to offer shorter term contracts to increase their agility.
We can foresee a situation where, similar to the hotel industry, a co-working operator would offer a management contract model to real estate developers, assuring a mutually beneficial return for both owner and operator. Co-working operators would concentrate on their service offering, potentially using multiple brands to adapt to market conditions. Marketing their offer to companies, co-workers or the self-employed. Co-working operators could offer loyalty programmes, international brands, multi-services, hourly usage of working space and packages for companies to suit their employee's needs.
This model has been in use for many years within the hotel industry and it has proven successful.
The hotel industry has already acknowledged this common DNA. Business hotels already cater to many freelance workers. As experts in satisfying guests needs and demands, we see hotel brands that have transformed their lobby into a co-working space e.g. WOJO from Accor, or even going a step further to cater to new trend by creating a public space that is part workspace, part bar, part retail platform and part gallery, like Ace Hotel.
This different way of thinking about ground floor space, can also be transposed into the ground floor of office and residential buildings. Anyone with a lobby, or unused dead space, can install and create an area for sharing, an attractive environment for present and potential customers to interact, a place where activities and events can hybridize into more exciting combinations. Imagine a car manufacturer or dealership with an open space for independent workers or retired car enthusiasts, mingling with engineers and designers, as a place for potential employees looking for work to offer their services on a flexible basis to working teams. Benefits would include greater and more varied knowledge-sharing potential, greater innovation, increased productivity and motivation, enhancing a community feel and increased employee engagement.
In terms of facility management, in simple terms, you could either charge for the use of the space, charge for F&B services provided, or simply charge a nominal fee to manage overcrowding.
In terms of revenue stream from your office or residential real estate are you still satisfied with fixed per sqm revenue or are you willing to be involved in a larger part of the value creation and enter into the service industry?