If you follow our Real Estate Futurology section, you’ll know that I am very outspoken on the subject of hotel innovation. I dedicate an entire business line — The Modern Accommodation Group — to this very subject.
So what do I predict will happen with the hotel industry in the next 10–20 years? Let’s answer that question…
The first point to understand is that Airbnb has been the biggest innovator in hotels. Even though it’s a very different business model and accommodation type, it has undoubtedly influenced the industry. How?
- We learned that a large traveler segment wants a more authentic experience. In other words, they enjoy experiencing a location like a local.
- We learned that travelers love the amenities they receive at home. This includes a kitchen, washing machine, and other common Airbnb amenities.
- We learned that travelers are a bit tired of the stale designs commonly found in business hotels. The things they share on social media and comments they leave on reviews always seem to highlight the unique designs of either boutique hotels or other accommodation types.
- We learned that the world is traveling a lot more often and a lot of the “new travelers” are more price sensitive. Business travelers and luxury travelers are not too price sensitive. But there is a HUGE segment of travelers that want a sub $100/night room and even a sub $50/night room. Hotels in these price points are not serving this segment well in either quantity or quality.
But hotel innovation will go beyond these four trends. In the coming decades, there will be huge changes for this industry. Those reacting well to them will thrive; ignore them and you are risking a struggle. Let’s explore our predicted innovations (and why I expect this):
1 — Hotels will increasingly become business centers. It’s a bit shocking that this hasn’t happened yet. The opportunity is so clear and yet I’ve never seen a single hotel try to take advantage. Business travelers are some of the most reliable customer segments on the market. They travel reliably and are supported by corporate expense accounts, allowing hotels to charge higher rates.
So why on earth are hotels not providing top-line facilities for the business traveler??? This means setting up temporary offices and meeting rooms. This means top connectivity and ergonomic furniture. This means giving them the latest technology (printing, presentation setups, conferencing, telepresence, etc). This means catering business lunches, providing free coffee/tea, and other convenient amenities.
Even the top business hotel chains (Marriott, Hilton, etc) can’t seem to get this right. They have outdated business centers and pay little attention to using it as a competitive advantage. It’s shocking that they can’t identify this as a huge opportunity.
There’s a reason why co-work spaces, temporary offices, and other business facilities are springing up around the world. The hotel industry could be at the front of this. I predict they eventually figure it out and start to innovate substantially in this space.
2 — Hotels as the center of entertainment. This is another perplexing one. Hotels often occupy substantial pieces of real estate. They are usually located in prime spots and are giant buildings on sizable land. So why do hotels waste that opportunity with mediocre food/drink options and a non-existent entertainment scene?
To use an extreme example, think about Las Vegas casinos. Their hotel business operates at break-even and sometimes a loss because they know the margins are much bigger on other things: gambling, shopping, restaurants, bars, theater, and other entertainment. They make the most of their real estate and facilities. So why can’t a hotel in other cities do the same thing? Why don’t they use their prime real estate as an entertainment hub?
Of course it doesn’t have to be a replica of Caesar’s Palace. They might have 1–2 interesting entertainment uses suited for the local area. If they do it correctly, you’re adding substantial revenue and diversifying from room revenue. This is true innovation in the hotel’s business model.
3 — Special interest hotels. I predict a lot of hotels will spring up to cater toward specific demographics. Think about it this way… most other businesses target a specific demographic: Old vs young (think entertainment businesses). Male vs female (think clothing stores). Hobby specific demographics. Lifestyle specific demographics. So why do hotels target “everyone”?
I see a lot of hotels entering the market and targeting specific demographics. This already happens to a certain extent. Golf resorts. Bed & breakfasts. Health retreats. But I think it can extend further. Think of it as an advanced Airbnb property with 10 rooms.
You might have hunting club hotels. Or wine excursion hotels. Or under 30s hotels. Or singles hotels. Or vegan hotels. The idea is that you’re organizing events, activities, or social opportunities toward a specific interest group or demographic. And the hotel aspect provides a room and experience tailored to that customer. Hotels don’t have to be big businesses appealing to everyone. It can be marketed much more creatively and have more customized amenities.
4 — The Rise of Co-Living. I think this is going to be big business. The concept is essentially the same as a hotel. You have your own room and bathroom and all other aspects of privacy that a hotel offers. Quality should be the same. The difference is that the hotel offers shared facilities. Kitchens, laundry, tvs, food/drink, and others resemble a house. A big house. It essentially combines the best aspects of hotels and Airbnb. You can live like a local, communicate with others, have home amenities, and your own privacy.
The business aspect of this is really compelling. You don’t need giant facilities to operate these businesses. You can buy a big house and operate it like a family business. But it’s more lucrative than a single Airbnb room in your house or investment property.
I love this business model and see more people getting into it. The immediate challenge is how to market the properties. It’s not really a hotel and not really an Airbnb. But I predict an emerging co-live version of Expedia that books these properties exclusively. And as I note in my article Co-Live Spaces: Brilliant But Flawed, they might want to re-brand the word “co-live” before it goes mainstream.
5 — Professional Airbnbs. This one is quite similar to the co-live concept but might better resemble a traditional hotel. The difference is that it won’t have that generic feel like most hotels have. You might live in a condo building with all the benefits of a condo unit but have professional cleaning, maintenance, and desk staff on-site. No more sneaking around pretending you’re a long-term tenant or dealing with mom and pop Airbnb operators. These buildings will be operated by professional accommodation businesses.
Regulation is the biggest hurdle here. Some cities might prohibit the possibility of this existing unless it gets proper zoning and land use clearance, while adhering to hotel regulations. But this is big business so I see it eventually becoming too big to stop.
Eventually, there will be much less differentiation between Airbnb and hotel properties. The professionals are ready to enter the industry and take the strengths from both accommodation types.
6 — Dissolving the Corporate Franchise Hotel Model. Big chains like Marriott, Hyatt, and others rely on a franchise model. They will license their brand name to franchisers, as these brand names have historically had a lot of benefits to a hotel business. In exchange for their branding, they require certain standards and franchise rules, while taking ~8% of revenue.
The future viability of this model is in trouble for many reasons. First is the emergence of good review sites. Customers previously booked these hotels because of trust in the brand and the consistent quality they would receive. However, now review sites rule the industry. You would be much more confident in a boutique hotel with a 4.7/5 average rating on TripAdvisor compared to a hotel that has a certain brand name. So why would hotel operators bother with paying such high premiums for the right to franchise?
Another reason people book corporate chains is their reward scheme. You can accumulate good rewards and perks from being a frequent Marriott guest. But that can be replicated going forward. Reward alliances can soon emerge among a group of independent hotel groups around the world (using blockchain).
Third, Airbnb (and our predicted professional Airbnb properties) will make a big push into the corporate hotel’s customer base (business travelers). They are already starting this process but it will only grow as they have the tools to offer business facilities and reward schemes.
No matter what the reason, future trends don’t look great for the franchise hotel model. Perhaps they innovate. Perhaps there is such a strong quantity of traveler that their high occupancy rates persist. Or maybe their established brand financial position continue carrying them to success. But there are headwinds for this business model ahead.
7 — Diversifying from the nightly room rate model. While this will always be a core aspect of the hotel business, there are opportunities for diversification. First, hotels can take the queue from Airbnb and start offering discounts to weekly and monthly travelers. There are large quantities of people traveling longer term. Hotels ought to address that customer segment with competitive pricing, facilities, and experience.
Secondly, there are many models shorter than a night that might be interesting. We already mentioned office space. This is typically a day-time activity that can be rented hourly (or on longer horizons). Ditto for entertainment experiences.
8 — The Modern Accommodation Principles. Finally, we predict a lot of smaller business model changes taking place in the hotel industry. I’m leading the way with my Modern Accommodation Group company. We have scores of hotel innovation ideas that touch on various aspects of the business: technology, revenue strategies, cost efficiencies, and other resources.
The idea is that we target modern customers and give them the services they desire. The world has changed significantly in the past decade and will continue changing rapidly. The hotel industry needs to keep up (and honestly hasn’t done a great job of it). So I’m teaming with existing accommodation owners, managers, and investors to offer something better.
For more details on the innovation services and partnership opportunities I provide to hotels, Airbnbs, and other accommodation types, check out Modern Accommodation Group. Get into contact to discuss more.
And I’m also happy to add any of the other items discussed in this article.
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