AFeature.inddHotel development and investment experts discuss changes in guest preferences, the influence of technology and online booking sites, the financial side of the business, and other trends.

Lobby of the W Hotel in Times Square. (© James Leynse/Corbis)

Lobby of the W Hotel in Times Square. (© James Leynse/Corbis)

How are demographic factors and changing consumer preferences affecting the hospitality industry?

Warren Marr: For quite a few years, commercial business travel has been dominated by the baby boomers. While the baby boomers are still a powerful force, generation X and the millennials are starting to increase their purchasing power within the sector. People in their 20s and early 30s are looking to spend less time in the guest room and more time interacting in the public areas of their hotel. Instead of logging onto their computer at a desk in their hotel room, they’re more likely to go down to the lobby or the lounge and connect that way. So, many hotel brands are changing the way they design their common areas.

Related: New Hospitality Concepts Target Millennials

Steven Angel: Hotel brands are focusing on the next generation of business and leisure travelers—the millennials. In response to their preferences, hotels are providing more robust and vibrant public areas that can serve as gathering points or places to hang out. The interesting challenge will be achieving the best balance so that hotels meet the needs of the younger traveler without alienating older and more traditional guests.

Allison Reid: Travelers in general are becoming less formal [and] more self-reliant than previous generations. They’re digital. Everyone is connected and time-constrained, so they’re focused on doing more with less. Also, sustainability issues are front and center for our guests and their professional organizations. All of our projects today incorporate both digital and sustainability aspects. These are critical areas for developers to consider.

Jeffrey Quicksilver: A new generation of consumers is driving the continued emergence of the boutique brand. You continue to see that with Marriott’s Autograph Collection and Hilton’s Curio Collection. Even the independent brands, such as SLS Hotels, Ace Hotels, Thompson Hotels, and James Hotels, are trying to become more like boutiques. Owners are questioning whether they need to pay for a big brand, because customers are now less willing to pay for the luxury that some of the big brands have traditionally offered. Young people don’t want the turn-down and concierge services anymore. They’re looking for a certain kind of atmosphere and sleekness that they get with boutique hotels.

Kevin Jacobs: People’s propensity to travel is changing around the globe, with a rapidly expanding middle class that over the last two decades has gone from a billion to 2 billion people and is expected to go to 5 billion by around 2030. Over the last two decades, the number of cross-border travelers has doubled—and that number is expected to almost double again over the next two decades. So, we have to think more about what those travelers expect from us, culturally, when they arrive at our hotel. Also, in the United States, there are nearly 16 hotel rooms per every 1,000 people; in places like China and Brazil, there is roughly one per 1,000. So we are focusing our growth globally to match up with this heightened demand.

What impact is technology having?

Jacobs: Guests today are looking for more choice and control. We recently launched digital check-in and room selection, which allow our customers to check in online or with their smartphones the same way they can check in online for their airline flights. In six of our brands in the United States, we now have virtual floor maps available so guests can choose their room online, and we expect to offer that globally by the end of the year. Guests can use the internet to request an amenity in their room, order a spa service, make a dinner reservation, and also check out. Next year, we will begin to equip our hotel rooms with the technology to allow guests to unlock their doors with their smartphones, enabling them to go straight to their rooms upon arrival.

Angel: The need for impeccable wireless internet infrastructure is growing. And it’s important for the hospitality industry to keep up with technology, whether that means communicating with guests via texting or providing an app that lets guests use their cellphones to open the door to their rooms. Even with in-room entertainment, the cutting edge is always changing. The traditional pay-per-view movie model seems to be going out the window. I think it’s only a matter of time until we see a model that allows guests to take content on their own devices and “throw it” onto the guest-room TV screen using something similar to Apple TV or Chromecast.

Marr: Hotels can’t have too much bandwidth for today’s traveler. The speed of internet service is critical, and the younger the guest, the more need for speed. The industry continues to try to catch up in this area, because as soon as it gets to a level that satisfies the type of technology out there, new technology with greater bandwidth requirements comes out.

Reid: Travelers are taking their technology with them wherever they go. That changes the paradigms of what public spaces, including hotel rooms, lobbies, and gyms, should look like. Before, you had to have a wall for a TV and a desk for guests’ laptops or computers. But now technology is small and mobile. I don’t travel with my laptop anymore, because I can handle business with my iPad or iPhone—and that’s true for a lot of travelers. This creates a paradigm shift for the standard room configuration.

How are online booking sites and Airbnb changing the way hotels do business?

Angel: Sites such as Airbnb have created quite a buzz. I think that it will have less direct impact on the hospitality industry than expected, and that as the model gets wider exposure, it will continue to expose some of the basic flaws with peer-to-peer renting environments that don’t offer the security or assurances of a commercial lodging establishment. Some of the concerns around services like Airbnb are overblown. Online travel agencies like Expedia, Priceline, and Booking.com have been around so long that the next level of integration is to find a balance between provider and intermediary that ends up looking a lot more like a traditional travel agency experience, but perhaps at a moderately higher commission level.

Quicksilver: Booking windows are shortening because people have access to so much data now. It used to be that a group would have to call five or ten hotels, six months to a year in advance of a convention, to secure space. Now, smaller groups can simply go online without having to worry about being squeezed out. That’s part of the “boutique­ification” of the hotel sector—the boutique hotels cater to the type of consumer who makes use of online marketing and booking capabilities. More business will shift to online services like Expedia, and there will be less brand allegiance.

What’s happening on the financing side?

Reid: Construction finance is back for some projects. In the lodging sector, it started in the limited- and select-service hotels, likely because they are generally a less risky proposition—they take somewhere between 18 and 24 months to build, have minimal costs, and were financed primarily by regional or relationship banks. Eventually, the national lenders started to make capital available for good sponsors in strong markets. We are starting to see a pickup in the luxury segment as well, mainly in urban areas, and most projects have a residential component. The luxury side came back faster than most people anticipated. Last year, about 80 percent of our builds were select-service hotels, and about 65 percent were renovations or repositionings. This year, we’re at about 60 percent select-service, 40 percent full-service or luxury, and more than half of them are new builds. That’s how quickly the market has transformed.

Jacobs: Hilton Worldwide has grown by 40 percent since acquisition in 2007. Almost all of that growth has been in the management of franchises—what we call our “capital light” strategy. We still own a substantial real estate business, but that’s a legacy business, and we’re growing by optimizing properties from an asset management perspective. None of the hotels in our pipeline—which have a total of roughly 210,000 rooms—[is] going to be owned or leased by us. They will all be either managed or franchised.

Quicksilver: The securitization market for hotels is coming back, which is helping to drive pricing in this sector—not only as a result of performance and cash flow, but also as a result of the improved financing market for hotels. It’s becoming more competitive to find attractive investment opportunities. One thing that’s attractive about hotels is that it is possible to find properties that you can buy today with yield and—with attractive leverage—generate high-cash-flow yields. That allows you to get a significant part of your capital back through cash flow over time, so you don’t have to rely so much on residual and be exposed to cap-rate risks in a rising interest rate environment. That’s better than buying vacant office buildings or other assets that have no cash flow today.

Marr: The hot topic in the press is crowdfunding. There is one major project that has used this to date, and that’s the renovation at a Hard Rock Hotel in Palm Springs. How much traction crowdfunding is actually going to get in the hotel sector remains to be seen. Traditional ways of financing hotels, which everybody said had gone away after the recession, are back, even if the underwriting is more strict.

What other trends are having an effect?

Quicksilver: This is true of the real estate industry as a whole: we have to watch new supply. Hotel construction is increasing in most markets, and as performance continues to improve and pricing continues to increase, hotel development is becoming an attractive option for investors.

Reid: Customers are used to less formal work environments, and that’s influencing the design of multipurpose spaces: lobbies, meeting rooms, guest rooms, and gyms. It used to be that a hotel ballroom had air walls that could slide to break the space into smaller rooms. Now, meeting spaces have removable walls, and restaurants have movable walls so they can turn into meeting spaces or banquet spaces. Meeting spaces offer more options, such as communal or high-top tables, stadium seating, casual seating options like beanbag chairs, and more outdoor spaces. This flexibility works for meeting planners, who are trying to create unique events, and it works for developers and hotel operators, who are trying to use space efficiently.

Jacobs: Customer preferences are changing with respect to some aspects of full-service hotels. For example, in a city like New York, customers can easily find great places to eat nearby, and they don’t necessarily want a white tablecloth hotel restaurant. So in a number of our hotels, we’ve changed our restaurant into a grab-and-go service. At the New York Hilton, we still serve breakfast, but otherwise customers can go downstairs, grab their own food—flatbread pizzas, premade salads, soups, sandwiches, etc.—and take it with them. They can order from their room and have it brought up in a brown bag.

Marr: Because of the number of new booking engines and the resultant ability of customers to find a hotel very quickly without going on the websites of the hotel brands, in certain markets, developers and property owners may choose not to go the traditional route of branding their hotels. Most recently, that has been happening more in major gateway markets like New York City than in secondary markets, but it’s happening. To help combat this, some hotel companies have come up with what is called “soft branding.” Owners of independent hotels keep the name of their hotel—so the ABC Hotel would still be called the ABC Hotel, but it could be part of, for example, Marriott’s Autograph Collection or Hilton’s new Curio Collection. These independent hotels can then access the hotel company’s reservation system and frequent-traveler programs, but at a lower cost of entry, with a brand standard that is much more flexible.

Angel: Ongoing globalization is having a big effect. The United States has made a lot of progress over the past several years in terms of easing the visa process and making it easier for international visitors to spend dollars here. That’s a tremendous opportunity—particularly for the gateway lodging market—and we’ve seen the impact already in places like Hawaii, with the influx of South Korean travelers, and the growing base of Chinese travelers beginning to visit the United States. That has the potential to provide a cushioning effect to any economic downturn over the next five years.

Ron Nyren is a freelance architecture and urban planning writer based in the San Francisco Bay area.