Despite the challenges posed by the pandemic, IHG has remained committed to its expansion plans. In the past two years, the hospitality group has signed numerous deals across the globe, with Europe being a key focus. The company aims to have 60 hotels in operation by 2035 and recently debuted the InterContinental brand in Albania. IHG is confident Southeast Europe presents many growth opportunities and is committed to investing in the region.

For more insight into IHG's recent developments and plans for the SEE region, Ali Shahid welcomed Hylko Versteeg, who heads development in Southern Europe for IHG, for the ninth episode of the IDEEA podcast. Across the deals being put forward, the request for luxury projects has increased, leading to higher interest in opportunities in Southeast Europe. Regarding liquidity among investors, Hylko believes there is more available than ever, and investors are looking for investment projects. The pandemic has also forced the younger generation who have come into hotel ownership as part of the family business to re-evaluate whether they would like to continue in the same vein seeing the hard work and effort needed to make these investments work. The sale of assets from those unwilling to continue has created opportunities for brands and operators to enter markets, which would not have been possible previously. Italy is such a market which ample opportunities and few branded hotels.

Success is not without challenges, so despite the optimism around current opportunities and performance, IHG is staying alert on issues such as sustainability and staffing impacting the wider industry. Grab a tea or coffee and take 15 minutes to hear the insights being shared by Hylko in this episode.

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TRANSCRIPT

Intro: Welcome to the IDEEA Podcast, a channel for the IDEEA Hospitality Investment Forum, which is an annual gathering for the Hospitality Investment Community in Eastern Europe. Tune in to insightful conversations between the IDEEA team and hospitality investment leaders and innovators across Europe. And now let's dive right into today's episode.

Ali Shahid: Hello and welcome. I am Ali Shahid, Marketing Director at the Bench and today I have with me Hylko Versteeg from IHG. Welcome Hylko.

Hylko Versteeg: Thank you. Thank you for having me.

Ali Shahid: You're very welcome. Hylko, straight up, why don't you give us a quick intro for those who don't know, about yourself and your role at IHG?

Hylko Versteeg: So my name is [inaudible 00:50] pronounced as Hylko Versteeg and I head up development for IHG Hotels and Resorts in southern Europe. So basically the whole Mediterranean region excluding France, Turkey and Eastern Europe which are obviously important markets on its own but for pretty much all the other countries around the Balkans, Spain, Portugal, Italy, Greece, Andorra, Gibraltar, then all of the Balkans and Albania, Cyprus, Malta, etc. So in total 16 countries for all our brands.

Ali Shahid: So that must make you a very busy man?

Hylko Versteeg: To say the least, yeah; and challenging now obviously after COVID but also with travel, it's very busy with travel with all the challenges that air traffic has today, it keeps us busy.

Ali Shahid: Well, why don't we talk about that very quickly then. What do you think is happening in the region? I hear demand is really insane. What's happening in the industry right now in the region, in Southeast Europe and the areas that you specialize in?

Hylko Versteeg: I think you used the correct word. It's crazy in a good way. There's a huge amount of work for us. We're being extremely successful, signing an incredible amount of deals across the board and all brands. We have seen a bit of a change over the last few years that's going more from the core brands to design lifestyle and luxury is coming up a lot. And I guess that's also to do why Southern Europe to a certain degree is booming. So there are a couple of factors there. So on one hand, you have obviously the traditional where it was more on Urban Developments and with COVID there's a lot of travel that is now remaining within Europe; where people can go also with cars, they don't want to do that 20 – 30 hour flights that eagerly anymore. So the leisure component has increased dramatically in the whole of Southern Europe. Which is a little bit the vacation destination for the whole of Europe in the area of influence. That together with that some of the traditional bigger markets and you're talking Germany, UK, probably Russia now obviously, with the whole situation there as well. There's a lot of liquidity still around and looking where to invest. And now that you're not so urban or tour operator based in the leisure components, that it's more all rounded, there's been a tremendous amount of interest into southern Europe.

Ali Shahid: Hylko go you touched upon the geopolitical situation in eastern parts of that region. Do you want to tell us what you predict, or maybe it's very hard to predict. But what do you think, is the next challenge now as we move into the later part of the year?

Hylko Versteeg: For the hotels in southern Europe you mean?

Ali Shahid: Yes.

Hylko Versteeg: We're pretty optimistic. I mean, from what we're getting, we're seeing in the books and we obviously have a lot of update calls and meetings with also with our ops and operations teams - GMs or regional operations and everything. The pickup has been tremendous. It is true that the first few probably of this year there was still a bit of the pull along effect from the last parts of COVID, but the pickup has just been incredibly positive from April - May onwards. And for the moment we are still seeing that pickup continue to grow tremendously in pretty much all of our markets. So we are pretty optimistic. We know obviously that there are some big challenges in the market coming up and nobody obviously has a crystal ball. I think there'll be big challenges especially also on the cost side in the hotels, which is something I think we're going to have to adapt to in any case, and that's also part of our environmental strategy. We need to start saving money on light, water, electricity, but also on sustainability with both cost part but also with staffing; staffing is becoming a huge issue. But overall, so far, we're seeing a very strong end of the year for the moment.

Ali Shahid: So that's very interesting. You mentioned sustainability as a key focus area. And of course, ESG is a big buzzword. It's also a serious consideration for the industry and for businesses worldwide anyway. How do you think the industry is challenged with that? What do you see are the biggest roadblocks or bottlenecks that we are facing with the attention that is being given to ESG by an industry?

Hylko Versteeg: Well, it's been a long time coming. And it is somewhere the hotel industry has had to adapt in any case. Independent of the energy crisis that might come up, or the obviously the inflation that we're already seeing and the increasing costs, it was already something that was on the cards for us specifically already. Before COVID, we announced that we were starting to range out what was the small item amenities, because those are obviously, tremendously un-environmental. If you think about it all these miniature bottles, all that plastic that pretty much gets used on a one-time basis. But there's a huge list of stuff that you can obviously look at. Everything is becoming more scarce. So from electricity, so changing light bulbs, changing the water supplies, the reuse, do you work with, on-off lighting systems, when you open windows air conditioning should obviously switch off automatically; it is something that the hotel sector has to have to adapt to and we are doing. And it's not just from a cost perspective, it's also that our clientele, both from big corporations, but also the people traveling there are now also much more environmentally aware and looking what gets done. So we need to know what carbon footprints we are having in our properties, and what people who are traveling are willing to spend on their carbon footprint when they go to hotels. So big investors, especially the big ones now coming in, or that have already been in the hotel sector, it's also part of their policy and strategy for those type of companies that they want to go or to hotels that have this in place, or owners for example. A lot of of our partners in the hotel development scene, we are working very close together with them as well on implementing the maximum amount of environmental sustainability and governance practices that we can, because it's only going to become more important in the future.

Ali Shahid: That's very interesting that you bring up that this is becoming increasingly a critical point of, I guess, decision-making for your investors and owners as well. So talking about the investors and owners, have you felt there's been some shift in recent times in the investors and owners? What kind of demographic maybe, or what kind of change have you witnessed over the past few months or maybe a couple years?

Hylko Versteeg: There's been a huge change from several perspectives. I think, first of all, because obviously, there's been a slowdown in investment in some of the key European markets for different reasons that has also allowed these types of funds or family offices or private equity funds to go to Southern Europe to areas they were previously not even looking at. Traditionally in southern Europe, a lot of the hotel sector in both urban and leisure was a lot of family-owned; family run, family owned. A lot of those hotels are seeing a generational change as well. So the younger generations seem not to be that keen in being part of a hotel owner operation perspective, they would rather sell and have somebody else manage it, which is obviously one of the big things that we do as well, we step in as IG hotels and resorts and manage on their behalf. But we've seen a lot of these properties also being sold off because they want to get out of the hotel sector, and they sell to some of the larger Pan European Investment Funds. And then I mention investments funds in a very broad way that really includes a wide array of different types of real estate, private equity funds, vulture funds, and family offices, etc. There's also been a much larger interest of the traditional operating company. So what we obviously call the white run operators that were traditionally very country-based, there are also now a lot of them that are starting to become first of all more Pan European but also with a lot more focus on Southern Europe. And there's been an additional huge change. And we see that ourselves as well from IHG Hotels and Resorts. Is that there is a much bigger focus on the leisure part because that has also expanded tremendously over the last few years and we see that going on for the considerable future; and we've experienced it with signings in Algarve, in Majorca, in Crete, in Montenegro, in all the countries we have huge resort being popped up and that's just I think, also a result of the big change there.

Ali Shahid: Hylko, there's something very interesting you just mentioned here. There's this whole generational paradigm shift that's coming about from the ownership and investment perspective. But it also sounds like you're saying that it's becoming more institutionalized. Did we hear you right?

Hylko Versteeg: Correct.

Ali Shahid: So why would you say that the younger generations aren't adapting, let's say, the more traditional ownership model? What's suddenly changed?

Hylko Versteeg: When you look at it traditionally, specifically markets like Spain, probably a bit less than Italy, but Italy specifically has been a huge market where there's very little internationally branded hotels. There are relatively few Italian branded hotel chains, if you compare it for example to Spain, so a lot of it was independence. And it's hard work; everybody knows that the hotel sector it's a vocation. You have to love the sector in order to be able to function well within it. And it's a lot of work. And a lot of these owners were also operators at the same time. That is it's a lot of hours, it's top season during your vacation periods for everybody else, and the younger generation just seems to be more switched off from getting that involved in the hotel operating parts. So they are either selling, because they don't want to continue, or they're getting other white brand operators or hotel teams like IHG hotels or resorts to step in and manage on their behalf.

Ali Shahid: Moving on to the whole summer demand and those kinds of issues that the sector is facing. I have a question here that I was meaning to ask. It seems since the beginning of Q2, and especially during the summer months, the prices in Europe overall have hit records.

Hylko Versteeg: Correct.

Ali Shahid: And at the same time, you have fall where we have inflation, a lot of people talking about recession. What do you think is going to happen September onwards? Well we're in September now....

Hylko Versteeg: I mentioned it a bit before. It's true. I mean, the prices we've seen it across the board, pretty much in what I've then called Southern Western Europe. There were easily up to 2019 levels, which was then obviously, already a record year, and the fact that we're doing it now again, and some hotels or quite a bit of hotels, even a lot higher than 2019. So I think it comes down to there's been a lot of what we call the revenge travel. Everybody's been traveling like crazy, because obviously after sitting at home or having limited travel options over the last 18 - 24 months, it's created this huge buzz which has obviously resulted in some more negative experience with the big airports, the delays, the queues and everything. But in the end, it's purely demand-supply. I mean, I don't know the exact number, but I'm pretty sure that 99% of the hotels are open again, that were open pre-COVID. There's only very few, I think that remains. So it's nothing to do with the hotel supply. There's obviously been less new hotel supply coming into the markets over the last two years because there was a bit of a drop in demand or a drop not in the signings of new deals, but obviously during the construction there's been some big challenges in supply chain that has caused delays in, I would dare to say in the majority of the new build projects. And that obviously has a bit of a pull-along effect. But when you ask me, I don't think that we'll continue to see the extreme high rates that we experienced from May till now, till September, although it keeps on going. But as I mentioned before, we are seeing this incredible, not just pick up but levels of reservations that that gives us a very optimistic feeling. Will there be an economic crisis that will have some effect on more of the short-term transient and maybe some of the more mid-level corporate business travel? It might be. We don't have a crystal ball but it that that might be the effect that comes in when people are going to say, okay, maybe we need to cut on some costs in order to be able to tackle the electricity costs that might come. I don't know if I've answered the question on that one.

Ali Shahid: You did. I also want to save some of the insights for later when we will meet with you in person in Athens for IDEEA Hospitality Investment Forum in just a few weeks. So I guess we can wrap up now Hylko, and I also want to thank you and IHG for your support, of course, you are one of our sponsors. So thank you for your support, and for committing to joining us for this very exciting conference. And the way you have shared some of your insight, it sounds like it's a very interesting time for the industry and for the market. So thank you for all of that and we look forward to seeing you.

Hylko Versteeg: Yeah, can't wait. We'll see you on the 26th and 27th in Athens then. We're coming with quite the team and with a lot of our owner and potential owner partners, so we're looking forward to it.

Ali Shahid: Fantastic, thank you so much.

Hylko Versteeg: Alright, take care.

Ali Shahid: Bye bye.

Outro: Thank you for listening to the IDEEA Podcast, the channel for the IDEEA Hospitality Investment Forum. You can find a full transcript of this conversation in the Content Library on ideaa-forum.com. With other reports and insights. We look forward to welcoming you and your colleagues in person at IDEEA in Athens, Greece on the 26th through 27th of September 2022. If you haven't registered yet, please go to ideaa-forum.com to purchase your pass today and save before ticket prices increase. Please feel free to email us with any questions at hello@thebench.com.

Until the next episode, stay safe and keep well. Bye-bye for now.