THREG, London (06.23)
Once upon a time there were a Data Collator, a Contractor, a Banker, a Supplier and an Operator in a legal firm’s meeting room. What do you think they had to say? Take-away nuggets below.
- The Data Collator said: high inflation on operating costs persists, especially on utilities, many revenue pressures are appearing, and GOP increasingly under pressure. C&B still slow to recover. High leisure spending of recent years (Revenge Tourism) is waning as consumers have now spent their C19 savings and are increasingly feel the cost-of-living pinch.
- The Contractor: development costs are still rising and there are few upsides at present, with increases of 10% over the last 12 months. Forecast is for another 3%+ over the next 12 months with labour the most significant factor (much labour was lost from the construction sector because of Brexit and C19). Also need to bear in mind that hotels are competing with developments in other more buoyant sectors (for example, lots of investment redirection into residential in its various forms). Overall, front-end works are cheaper than before (such a demolition and piling), but later stages of work much more expensive (such as facades and MEP).
- The Banker: Cost of debt is rising and the expectation is that rates will go above 5% by year-end and be at that level to end of 2024. Appetite to lend on new development remains, but more equity likely to be required to make numbers work, so traditional LTC of 60-65% may be lower today and going forward. As a result, there is more involvement from the bank to get Credit Committee ready – they need to make sure the deal is a good un for the given location.
- The Supplier: development costs can be reduced by engaging in close collaboration between suppliers, the General Contractor and developer/client, whereby together they can work on specifics to find cost solutions. For success, the parties need a good working relationship and early involvement is essential to make such costs savings work.
- The Operator: increases in operating costs are an opportunity. Hoteliers should use this opportunity to look more closely at costs, apply Zero Budgeting techniques and understand reasons for any cost increases. It will take time for the UK to recover from such a high inflation climate (after all, it took the UK nine years to overcome rationing protocols after WWII). Things to consider: review menus, use more technology, monitor more closely, better use of spaces within premises.
This was one of the more informative and captivating panel sessions, so many congratulations to the THREG team and the wonderful moderator (with a not so small ‘m’, but more of a good sized ‘M’), Paul. See you at the next one.