Hospitality is Eating Real Estate
Guests and Customers, not Tenants and Visitors
Whether they like it or not, all CRE owners have now entered the hospitality business.
It started off slowly.
About a decade ago, a few pioneering apartment firms, like Cortland Partners, decided they would take a different route to growth of their portfolio. As they grew their assets and needed to staff, they went against tradition and hired outside of the industry.
Rather than poaching the junior executives from other multifamily firms, they went away from the apartment industry entirely into the hospitality industry. They hired Mike Gomes from Disney and a handful of Ritz Carlton executives.
The thesis was simple - most new apartments have similar amenities and locations. They are all shiny and new, but the ones who will retain their tenants in the long run are the ones with a hospitality-first mindset. The owners who obsess over guest/tenant experience the way Disney and Ritz Carlton do are the ones who outperform the market.
Cortland could teach the bricks-and-sticks. They hired for the hospitality mindset.
Cortland is now above ~$12B in assets under management and still growing rapidly. They are known as a thought leader in the industry and are extremely well-regarded.
That’s nice for them and all, but what does that have to do with everyone else in commercial real estate?
More than you might think.
Anyone notice a slight disruption in the office market last year?
CBRE did. With their acquisition of 35% of Industrious, CB showed they understand what they (in the office division) are actually providing - a workplace experience. Not just an address with amenities.
That’s the fundamental truth that most office landlords underestimate or don’t understand - you think you provide a shiny building at a sexy address with irreplaceable amenities. You don’t. You provide a workplace experience.
You provide a place to congregate with fellow employees. You provide a (semi-)formal environment to meet with clients and partners. You provide an environment to disconnect from home life. You provide space for quiet work and space for collaborative work. You may provide a place to workout and a place to buy sundries and meals.
That’s what you actually provide. Those services just happen to be bundled into a single building.
What if I unbundle them? What if I rank them in order of importance and eliminate the ones I don’t need?
Look at the list again:
Congregate + Meetings (Zoom/Teams/Google seem to be doing a fine job)
Disconnect from home (by definition, literally anywhere that is not my house could provide this and now I’m in the habit of finding time for this)
Quiet Work (“Dear Bose, thank you for high-quality noise-cancelling technology. Love, Human Grownups.”)
Collaborate (Slack, Discord, Teams, TeamFlow, ClickUp, and probably two dozen other team-management platforms that have sprung up in the past year).
Workout (Peloton, YouTube, Calm, or whatever gym/app your prefer)
Sundries (I’m not gonna say it. They’re worth $3Trillion. Uber Eats too.)
Meals (Uber, DoorDash, literally any restaurant)
Uh oh, friend. Looks like there’s trouble in office paradise!
What happens when the bundle (all of those in a single location) becomes less attractive than the unbundled we’ve gotten used to?
You can see why there is cause for some concern in the office world. And I’m not here to make any proclamation about office being dead (it’s not) or how and when we will go back to the office.
What is much more interesting is WHY we will go back to the office (we will). I understand that those services are convenient to have in a single location and that many work tasks are better done in person. But look back at the Cortland example.
What if office landlords became hospitality-focused?
What if a few landlords got Disney-level obsessed with guest experience?
What if the owner of your office was actually an advisor on how you came back to work and what technology tools made for the best employee experience? (Stop laughing. I’m serious.)
I’m here to tell you that it’s already happening. A few forward-looking office owners are starting to incorporate hospitality-like guest experience.
Simply put, hospitality already ate apartments. Now it’s eating office.
Do I need to walk through retail? Do you think there are mall and open-air shopping center owners that are not becoming guest and tenant-experience-obsessed now that things like air quality, touchless access, and occupancy analytics are no longer nice-to-haves but have become post-COVID must-haves?
Hospitality used to be a special asset class that didn’t play nicely with the other four “food groups” in real estate (Office, Apartments, Retail, and Industrial). They had complicated relationships with flags and unique occupancy and ADR metrics. Now they are undoubtedly the thought-leaders on how we get people back in our buildings!
Watch for hospitality executives to fan out across the CRE industry and watch for hospitality and guest experience technology to start permeating the entire real estate world.
Hospitality is coming for us and I think it’s a net positive for our tenants and guests.
Embrace it or get eaten!
NOI drivers will be key. I wish that Hospitality has eaten Apartments but there's still wood left to chop!
I could not agree more Matt. Looking after the customer/tenant experience is the key to all successful real estate projects.