Is now the time for hotel owners to invest in renovations?
Hotel owners are faced with a dilemma – invest in capex-heavy projects while hotels are quiet or wait to analyse the nature of the recovery and then refit and reposition.
For hotels, times are tough. Responding to these unseen market conditions, many hotel owners have adopted a survival-mindset to focus on business preservation. An unpredictable timeline on the easing of current travel restrictions is also creating hesitancy around budgeting.
We know from our own experience that is it harder to justify big-ticket spending in times of uncertainty. I have delayed my next planned car purchase as I am unsure whether I will use a car as much going forward – however, there are plenty of decent offers in the market.
This is the dilemma for hotel owners. Renew the Capex now while business is still depressed and forgo revenue during the pandemic? Or do you wait until recovery is underway, analyse the nature of the recovery and then refit and reposition?
The last year has tested the resilience of even the most reputable hospitality brands. However, with the widespread roll-out of COVID-19 vaccines underway, I am optimistic about the industry’s recovery. It’s just a matter of time, and how patient and resilient we can be for demand to return to 2019 levels.
Until then, a survey by JLL found that 36% of owners are wisely looking at the coming months as an opportunity to conduct either a comprehensive renovation or a targeted upgrade of certain facilities. In contrast to busier years, the current lull makes it possible to implement necessary improvements with minimal disruption to guests at decreased occupancy levels or the opportunity cost of displacing business.
Owners who hold off on renovations to conserve funds in the short term may find themselves falling behind in an increasingly competitive field. The current market is seeing large existing inventory and significant pent up new inventory coming online in the years ahead.
Conversely, those who seize this moment to invest will be well-poised to capitalise on the anticipated strong market recovery by 2023-24. Regular improvements in all hotels are essential not only for functionality but also to ensure that these spaces continue to feel fresh and relevant. In essence, the question that owners should be asking themselves right now is not if they should renovate but rather how to do so strategically to ensure maximum long-term gains.
Operationally, we have found that one of the most effective adjustments is creating revenue growth through flexible space utilisation. For example, hotel owners may want to examine how they can combine front desk check-in areas with multipurpose community spaces that integrate work zones, smaller meeting spaces, and simple F&B concepts. Not only does this allow for greater monetisation of the space, but it also appeals to affluent digital nomads and travellers who often mix business with leisure. We also notice many corporate city hotels consider enhancing their property with wellness elements and interactive children’s areas to broaden their client base, blurring the lines of business and leisure travel.
Given that owners are seeing lower occupancy, this is also an ideal time to spruce up hotel rooms. In the coming months, while demand is low, it should be possible to overhaul large numbers of rooms without cutting into the bottom line. Owners should review guest feedback and optimise for a refreshed and improved room experience that caters to specific clientele’s needs. Owners could even adapt products to a new target market as business segments are evolving and are likely to be different for some time.
For instance, many newer business hotels have attempted to do away with the traditional workstation but are now realising a real need for a functional alternative. Interestingly, we have observed that extended-stay properties are taking on more transient travellers and that regular hotels are looking to secure longer-stay clientele. By converting some rooms, hotels will be able to cater to different demographics, thereby diversifying their base income. This is also an optimal time to add relevant high-tech touchpoints such as self-check-in apps or kiosks, all of which will make hotels more attractive to their target clientele and bring about efficiencies in the long run.
Finally, as the technology that powers meetings and business conferences evolve, hotels must adapt accordingly. In order to cater to the next generation of MICE, function spaces should be upgraded for even greater flexibility. Through partitions, large ballroom spaces can easily be transformed for hybrid meetings, short-term displays, concerts, or weddings. Additionally, incorporating the latest technology will be essential to maintaining a competitive advantage.
After an extremely challenging time for the hospitality industry, we will need to do our utmost to deal with the current circumstances yet focus on the future to build forward-looking solutions that are agile, efficient and multi-faceted. Owners who take the leap now will reap the rewards in the coming years.