‘Hotelisation’ of real estate brings benefits to businesses

Changes in consumer demand have shaped the real estate market in the past few years and one major trend has emerged across the sector, with more real estate businesses adopting a service-led hospitality approach to a wide range of property types. Legal experts Danielle Clifford and Leo Parkington at Pinsent Masons referred to this growing trend in the sector as “hotelisation” and said that it has led to a shift in the market, focusing on “experience and dynamism”.

“We have seen this trend apply across the sector as consumers seek mixed-use real estate that can offer live, work and play. More complex consumer requirements for multi-use spaces and complementary technology typically require a less passive approach to portfolio management. This shift in demand often necessitates the use of an experienced operator or management company. The pay-off is more resilient, profitable and sustainable buildings,” said Clifford.

She explained that the trend first appeared in luxury and branded residential homes and has spread to the wider build-to-rent market where tenants are increasingly seeking convenience, comfort and community in their living spaces. In those settings, operators typically offer hotel-like services and amenities such as housekeeping, entertainment, wellness and fitness centres.

“Hotelisation is now prevalent across the sector particularly in relation to offices where the rise of remote working and the gig economy has created a market for service-led office spaces with amenities such as catering, childcare and multi-use event spaces,” she added.

Hotelisation can benefit property owners, operators and managers in several ways, according to Parkington. It will encourage owners and operators to take an “asset-light” approach through a management agreement model and will foster innovation in the sector, which can lead to more profitable businesses and higher value assets.

“Repurposing assets to mixed-use hospitality-led venues usually requires owners to team up with operators in the market to deliver change. Using a management agreement model rather than the traditional long-term lease allows owners to innovate. A management agreement is less of an upfront capital commitment for operators when compared to a lease and this gives access to more entrepreneurial operators that bring with them strong branding, knowhow and tech,” said Parkington.

This has already been the case in the serviced office market, where operators have disrupted the market by introducing subscription-based models which enable owners to quickly adapt to market demand for office space and benefit from additional revenue streams such as event or meeting spaces that are facilitated through office apps. The same is expected to happen in build-to-rent developments that use resident apps to allow tenants to book amenities and spaces.

“Meeting shifting user expectations, whether tenants, office workers or even consumers – particularly in sectors like retail, sports and leisure - helps to attract and retain users and ultimately increase asset value. This is supplemented with tech that can use data to deliver a personalised experience to each user,” he said.

Santos Hau, also of Pinsent Masons, said that another benefit of this model, which generally involves a single operator, is the better management of sustainability objectives. “Operating companies have sight over the whole of the property and can look after all measuring and reporting obligations and implement tech-led efficiencies in the use of utilities,” he said.