Facebook campus hotel a bet on comeback for business travel

Washington

CORPORATE travellers in the United States are still hunkered down at home, with little telling when they will start seeing clients again or if the embrace of video conferencing will end the need to get on the road at all.

It is a chilling prospect for America's hotel industry, which leans heavily on corporate travel departments to fill rooms at full rates. Still, some are banking on a big future for business travel.

CitizenM, a Dutch lodging brand backed by Singapore's sovereign wealth fund GIC, is moving ahead with plans to open its tech-forward boutique hotels across the US. It is a bet that remote work will actually increase the need for employers to bring scattered staff together.

"The world is a different place now, but the demand generators we would have had pre-pandemic have only gotten bigger," citizenM managing director Ernest Lee said. "We don't believe there is a secular risk to our industry."

Technology and finance companies were already decentralising operations before the pandemic, pushing citizenM to fill its development pipeline with projects in Boston, Seattle and San Francisco, among other cities where far-flung teams are likely to gather.

Earlier this summer, with most travellers grounded, it signed a deal to build a 240-room hotel adjacent to Facebook's California campus.

Bill Ackman, the chief executive officer of Pershing Square Capital Management, has echoed the view that remote workers will need hotel rooms for periodic visits to headquarters, and companies that adopt that model may double-down on culture-building retreats.

"When a company loses a piece of business to its competitor's in-person sales pitch, it won't be long for the sales manager to require all future pitches to be in person," he wrote, explaining his position in Hilton Worldwide Holdings in a letter to investors.

The stakes are high for a global hospitality industry whose traditional sources of demand have been battered by Covid-19. Holidaymakers rebounded first, busting out of quarantines for stays at regional resorts. Group travel - everything from small weddings to citywide conventions - has been wiped out.

As summer holidays in the US come to an end, lodging companies need a business travel revival at a time when roughly a quarter of hotel loans packaged into commercial mortgage-backed securities are delinquent.

The hedge funds that made lavish profits betting against an index of mall loans is looking to hotel debt for its next Big Short.

Investors are paying close attention "to the post-Labor Day impact of seasonality and customer mix changes, which could result in a flattening of the demand recovery", Michael Bellisario, an analyst at Robert W Baird & Co, wrote in a recent note.

CitizenM, which owns and operates 20 hotels, is undeterred. The company plans to double its footprint in the next five years, developing properties that typically feature automated check-ins and casual social spaces instead of fully staffed front desks and full-service restaurants.

In the early stages of the recovery, road warriors will take fewer trips of longer duration, hoping to squeeze two weeks of meetings into one, Mr Lee said. Remote workers will book hotels for visits to the office, and employers will want space for offsite gatherings, even if large conventions have to wait. All of those things will take time, however, and there is not much lodging companies can do to make workers hit the road.

"Business travel sentiment is negative, at least comparatively speaking," said Jan Freitag, a senior vice-president at lodging-data firm STR. "Is there going to be a little more this autumn than there was in March and April, yes. Will it move the needle?" BLOOMBERG