Heightened workforce challenges are a key topic of conversation within the hospitality industry. But, despite the potential implications of continued labour shortages, investors continue to show confidence in the industry.
“We’ve had a good run of transactions happening,” shares Robin McLuskie, managing director, Colliers International Hotels. “Buyers are still looking for properties.” However, she adds, investors will certainly look at “the draw of talent and where [a hotel is] at with the [operating] model…but we haven’t seen it impact a trade going through.”
Similarly, Mark Sparrow, EVP & head of Hotels and Alternative Assets – Capital Markets, CBRE, notes: “In 2021, we did not witness a direct impact from heightened labour shortages in Canada in the transactions we were involved in. However, we are seeing investors spend more time through their underwriting and due diligence focusing on labour.”
This prevailing sense of optimism is fuelled by convictions that pent-up demand will allow the industry to bounce back quickly once travel restrictions are lifted. And once the floodgates open, there will certainly be great opportunities for the industry, but these can only be realized if hotels can meet guest expectations. And, doing so will require effective labour models.
As Philip Mondor, president & CEO of Ottawa-based Tourism HR Canada points out, “A critical shortage of skilled labour hampers growth and recovery and contributes to higher operating costs and reduced profits.” This also impacts businesses’ ability to compete and can lead to a decrease in service standards and staff burnout.
Mondor also points out that because the accommodation sector is “the hardest hit of the hardest hit and will be the slowest to recover” — particularly in urban areas that have seen the most restrictions — the delayed recovery is resulting in increasing competition for a dwindling labour pool.
“We’re seeing heightened pressure in key segmentations, such as full-service properties and resorts, where operating performance has returned [to] or surpassed pre-COVID levels,” shares Sparrow. “The impact in these markets is an increased expense related to sourcing and retaining staff, negatively impacting Net Operating Income and, therefore, valuation.”
However, he notes that most properties in this situation “have offset these additional expenses through increased revenue and flow-through in other areas of the business.”
McLuskie also points out that not all hotels are struggling with labour shortages to the same degree. “It certainly depends on where you’re located and your asset,” she explains.
She also points out that Colliers has seen some new entrants to the hotel industry buying properties with the intention of providing jobs for their family members — making labour shortages a non-issue. In cases like these, McLuskie explains, smaller, select-service properties are being favoured.
In general, Sparrow adds, new investors continue to see value in the industry. “We are witnessing continued cap-rate compression in the core commercial real-estate asset classes, making alternative options such as hotels, senior housing and student accommodations more attractive to new investors seeking yield,” he explains.
While there are opportunities and a general sense of confidence in the market, McLuskie notes there are certainly considerations investors shouldn’t overlook in the existing labour market. She points to existing tech integration and the amount of labour-intensive F&B offerings as factors investors should consider when looking at a hotel trade, as both impact the operating model and workforce requirements.
McLuskie also notes that experienced industry investors have been gravitating toward properties that can benefit from or offer additional “operating synergies” to their portfolio, with a lot of attention put on lowering operating costs, as well as sharing employees across properties.
Sparrow acknowledges that some investors have adjusted their strategies toward diversification. “We have also seen investors look at different segmentations or entry into new markets to offset pressure on their portfolios that have been impacted by rolling lockdowns or labour shortages,” he adds. “More investors are open to new ideas and exploring opportunities in segments and markets that they may not have historically targeted, as they believe in the long-term operating fundamentals and the accelerating recovery in the broader travel and hospitality/tourism sector across the country.”
By Danielle Schalk