+27% like-for-like revenue on the hotel portfolio in the 2nd half of 2021. An encouraging figure for the Covivio group and for the European hotel sector. Interview with Tugdual Millet, CEO Covivio Hotels.

The hotel branch represents 15% of the group's assets with a stable value compared to 2020.

Covivio has a varied portfolio including office, residential and hotels. What is your perception of hotels compared to other asset classes in the context of your development strategy?

Our three products are very complementary in terms of real estate strategy and growth prospects. In the Office segment, the strategy is focused on the development or redevelopment of new or restructured buildings, which currently account for the bulk of rental demand and where rents continue to rise.

Housing in Germany, a lower-yielding asset class, benefits from its status as a safe investment with a significant reserve for rental growth.

The hotel sector has a strong potential for rebound and higher yields, so we will continue to invest in line with demand.

Will the crisis we are currently experiencing change your vision of the type of hotel assets you want to invest in?

Nous avons trois cibles d’investissements :

• Investing in our hotels in order to adapt quickly to the evolution of business and leisure demand.
• Supporting new hotel concepts, such as the partnership we have just signed with Zoku, which will install its first hotel concept in Paris in a mixed-use building.
• Investing in leisure destinations in Europe that will continue to benefit from the growth in demand.   

How do you balance the lease or management in your properties? Will this vision change as a result of the previous two years?

We want to continue to maintain a balance between leased and managed hotels (Management or Franchise). This gives us the ability to find the best model for our hotels, to adapt to the needs of our partner operators and to keep up with the evolution of hotel concepts.

What are your objectives for 2022 and the medium term?

The first of these is to reap the benefits of the recovery. 2022 should be a year of strong growth, even though we will not yet have fully recovered to 2019 levels.

Next, we will continue to strengthen our position in leisure destinations. This was the purpose of our main hotel real estate investment in 2020: 8 exceptional hotels, located in the heart of the city and leased to NH in 2020 in Rome, Nice, Florence, Venice, etc. Southern Europe is a particularly favored destination.

Finally, we will continue to strengthen our direct management capacity for hotels and funds in France in order to improve the profitability of our portfolio by supporting hotel renovation.

During the Paris Asset Forum last November, the question of the search for value in all strata of the hotel cycle was discussed on several occasions. In your opinion, what are the levers for seeking even more value, both in terms of assets and operations, particularly through your variable rents or the properties you operate?

Beyond the accommodation part, it is the services that concentrate a large part of our thinking, what type of restaurant, what size, spa or not, work spaces... all these subjects that allow us to optimize or make the most of the common spaces and that can have a great impact. In addition, the environmental footprint and energy savings will become real issues, as well as the contribution of digitalization to profitability and the improvement of the customer experience. 

The group has announced strong ambitions in terms of ESG strategy, (for example: 40% reduction in greenhouse gas emissions by 2030), and building regulations are a variable to take into account. How are you deploying the necessary work within your properties in conjunction with your operating partners?

The tertiary sector decree in particular will be a major boost to get owners and operators on the same page. As we have seen in the office for several years now, our clients' demands are going to be increasingly strong to ensure that they are in a "sustainable" property, exemplary in its consideration of environmental issues. All this will of course require work, but also major changes in habits.

As an owner and investor, how do you ensure that your desire to respect the planet is reflected in the customer experience?

I don't think it's necessary to force the system: if collectively, owners, operators, managers, financiers, we don't put this environmental objective at the heart of our priorities, the customer's sanction will be severe and will be reflected in the rating.

You took over as head of the group's hotel branch during the crisis. What lessons have you learned over the past eight months?

When I arrived in July 2021, I was able to appreciate the strength of the sector's rebound and the strong desire of our customers to travel. This industry is bursting with energy after being hit very hard for almost 2 years. This shows its great resilience and the contagious enthusiasm of the people working in it, both at Covivio and our partners. We are fortunate to have a unique European portfolio of nearly €7 billion, which is a great opportunity for the future.