Public sector support of the European hospitality industry is an evolving story driven by climate change, macroeconomics, pandemics and urban planning, according to sector experts.
Good working relationships between the public and private sector are a foundational part of the direction of travel, suggests Neil Slater, the CEO of private real estate firm Redevco.
“Wherever we embark on city projects, be that in Paris, Hamburg, London or Amsterdam, collaboration with local authorities is crucial for getting the project off the ground,” Slater says. “But even more important is a partnership which leans towards the achievement of social goals, that defines how the asset will contribute to the city.”
Redevco, which specialises in complex city projects, often includes hotels in mixed use schemes and launched a joint venture last year with Swiss Finance & Property Group (SFP Group) for its ‘Next Gen Stays’ initiative, currently comprising a seed portfolio of six assets in Portugal and Spain in Lisbon, Porto, Bilbao, Malaga and Seville. The strategy aims to build up a portfolio worth around €300 million, repurposing obsolete assets in hotels which are then leased to professional, tech enabled hotel operators.
Slater asks that authorities “recognise that real estate investors are here to make a difference. The quality of the collaboration is important to achieve shared goals”.
Complex dance
Yet the dance between the public sector and the hospitality industry has been a complex one in Europe in recent years. The Covid pandemic exposed the vulnerability of countries with deeply service-based economies, such as Spain, Italy, Greece and Portugal, which faced losses of up to 10 percent of GDP growth in the face of the hospitality hiatus. Crucially, governments stepped up during and after the pandemic on a regional level via European Central Bank liquidity loans and the EU’s Next Generation Plan providing stimulus packages. On a local level, Italy, by way of example, supported individual workers in the tourism sector with welfare cheques and delayed their payment of quarterly tax returns.
Hospitality’s post-pandemic revival might suggest it has little need for continued public sector support. However, public sector scrutiny of the sector is likely to continue in the light of a tourism boom, notes Richard Dawes, director, EMEA hotel capital markets. “Many local and national governments are now shifting their focus to enforce a more regulated hotel space for a number of societal and economic reasons,” he says. In the UK, he cites revenues from business rates as a “good justification for supporting hotel development in local areas” which further boosts employment targets. However, the topic is nuanced. “We are probably seeing fewer public-private developments than we did pre-Covid, because government access to funds is under so much pressure. We however do continue to see regeneration schemes, where new demand drivers such as arenas can play a large part in supporting new hotel development.”
The flipside of the push to regulate is that hospitality is increasingly in the crosshairs of local politicians in the face of protests over tourism numbers, such as those seen in Spain this summer. While for many European cities, success for hotels means big ancillary receipts for transport, museums and other cultural sites, plus a general fillip for the wider local economy, overtourism has also brought its share of headlines – and problems to solve.
While Airbnb regulation has been tabled across Europe at a city level, moves to limit the sector are largely piecemeal. In Paris, for example, nearly 30 percent of apartments in the city centre are still being used for holiday lets, notes Vincent Mezard, global head of living & hospitality at AXA IM Alts. He warns that it is still “much more profitable to put a flat on Airbnb than on a long-term tenancy”. Resulting debates are likely to focus on increased housing provision as well continued drives to regulate hospitality, something which actually supports most professional hotel investors and operators in the long-term by throwing up barriers to entry.
Government backing
Alexandra Dublanche, president of the Choose Paris Region, wants to find better ways to work with the private sector, inviting investors and operators “to partner in shaping a future-ready region”. She adds: “The Olympic and Paralympic Games may have concluded, but their impact continues to energise the Paris Region’s real estate and infrastructure ambitions in 2025. Building on this momentum, we are advancing transformative projects that redefine urban living and working.” The Austerlitz masterplan, currently on the desk of French star architect Jean Nouvel, will revitalise a former urban wasteland with over two hectares of green spaces, 226 housing units, a hotel and office space.
Italy – another benefactor of the post-pandemic tourism revival – is also hoping to support hospitality’s long-term future with a raft of policies. The City of Rome is in the midst of its 2025 Jubilee, which launched in December. The designated holy year will see millions of Catholic pilgrims visit the city, which has been in the throes of major infrastructure works for the last few years in preparation for it. Mayor Roberto Gualtieri says: “The Jubilee represents an important test for our challenge to transform Rome and give us back a lively, dynamic city. It’s about enhancing its heritage of beauty whilst changing its face, through carrying out interventions of great complexity in a short space of time.” He adds that the city furthermore intends to welcome investors to help “enhance public assets, promote housing supply, and establish or strengthen non-residential activities in the hospitality, training, management and commercial sectors”.
Climate risks
A further challenge in which the hospitality industry will require public support is climate change. The floods in Valencia and fires in Los Angeles this winter showed not only how vulnerable cities have become, but how the private sector is wholly reliant on good government action before and after climate catastrophes.
Yet Slater says that private firms can work on their own environmental footprints as part of a more collaborative approach. “This not only requires us to massively reduce operational and embodied emissions within our assets, as we are working towards net zero carbon by 2040, but to also evaluate the social impact of everything we do,” he notes. The firm’s latest project in Paris, 126 Rivoli, has secured BREEAM excellent certification reflecting its environmental and social commitment. The redeveloped Haussmann building will deliver a lifestyle hotel and restaurant as part of its commercial mix. He adds: “We are probably an example of a company that is very business minded but believes that transformative real estate is possible in our industry and in partnership with cities.”