Boutique Design - January/February 2009 - (Page 14)

DESIGNER’S EYE BY PATRICK GOFF History Repeated Combating Recession Consequences I n previous recessions affecting hotels there have been specific misjudgements by those running western economies coupled to external factors that have led to a downturn. Seldom have we seen a recession like this one where everything, everywhere is going down at the same time. In the late 1980’s early 1990’s we had the invasion of Kuwait killing transatlantic tourism, followed by 9/11, both on top of interest rates in the UK rising to 13 percent, making commercial mortgage rates at 4 percent over base rise to dizzying heights. Now we have very low (and going lower) interest rates, but no one with any money to lend. Troubled groups that have been marketed for some time such as the UK’s Malmaison/Hotel du Vin group are unlikely to find buyers, and the view of many is that the market for group transactions dried up in the summer of 2007 with the onset of the credit crunch. Without the institutional investors available to fund the large deals, this market is unlikely to return very quickly. The disappearance of some banks and the continuous drop in the remainders’ share values has also brought some lending to a complete halt, resulting in projects being mothballed part way through construction. I know from experience that this can result in unpaid fees. For many small practices that perhaps have only one major hotel client, an abrupt halt to a refurbish- ve o Pl 14 • boutique DESIGN january/february 2009 lu a te I mp ment programme can force them into bankruptcy. I well remember a trip on the luxury Orient Express train organised by a supply company during which the designers on board realised that they were all, simultaneously, seeing a massive downturn in their business. Several of the practices are no longer in business, and nor is the supplier — a trip organised as a celebration of good years turned into a wake. What is the impact of such a decline in business on the refurbishment industry? When designers disappear because they have no work, this ripples through the supply chain. A small practice may have a fee turnover of some $800,000 a year representing FF&E orders of possibly $8-10 million. If half a dozen such practices go out of business is this possibly $60 million of FF&E not being ordered? As FF&E may represent 20 percent of a new n a build budget this implies maybe another $600 million of construction. Not big numbers I hear you say — but this represents the practices that I know have stopped working in the last month or so it may be that the total over the next few months is ten times this figure. So what happens in this situation? Last time around about a third of the UK industry disappeared. I am told this is also likely to happen in the USA. The implications for the health of the industry go beyond the obvious fall in employment. Much as they say London buses are only fully manned in recessions as building workers turn to them for jobs, so skilled people leave our industry and find employment they feel is more stable elsewhere. Designers go into teaching; one I knew in 1990 even became a missionary. But this also happens with skilled craftsmen such as re-upholsterers, joiners (millworker to you), curtain makers and the like. The drop in room rates in a recession took four years for hotels to recover from and there was a similar problem for design practices. Conversely, when the work came back, prices for skilled craftsmen went through the roof and we saw in the UK a massive influx of workers from elsewhere (the famous A Polish plumbers for example) as inflation in the building industry ran at double that in the normal economy. A whole range of what would have become middle management vanished from practices and most never returned. Previously stable companies were destabilised, unstable companies vanished. Early retirement opportunities were taken so experienced practitioners left the industry too. This does not need to happen again. Some companies such as GA international have become major international players. Those who reached out beyond the UK have become stronger, more competitive and have contributed to the respect for British design around the world. Poznan is the same travel time from London as Carlisle. Francesca Basu has moved her office from London to Milan to cope with her workload there. English is the lingua franca of the hotel industry; markets are still strong in Poland, Croatia, Montenegro (target of 100,000 hotel beds to be reached) and elsewhere. The UK is up as well. If you look hard enough the business is there. BD Patrick Goff is the founder of ct E va r

Table of Contents for the Digital Edition of Boutique Design - January/February 2009

Boutique Design - January/February 2009
Boutique Buzz
Designer’s Eye
Ian Schrager on Edition, His Partnership with Marriott
Business Sense
Niche. Improvement. Escape. The State of the Industry: Now and the Future
Industry Research
Three Firms Fight On
The Do’s and Don’ts of Networking
Simeone Deary Design
Haute Suites
Shopping the Market: Tabletop
Shopping the Market: Seating
Jeffrey S. Degen, AIA On Reasons Why the Time is Right for Hotel Development
Wanda Jankowski Speaks to Karen Daroff about Bathroom Trends
Calendar/ Advertisers Index

Boutique Design - January/February 2009