To say that 2021 has been an unpredictable year for the travel and tourism industry would be an understatement. As such, it has also been a year of unknowns for hotel real estate.
Certain areas of hotel and hospitality real estate have suffered but that does not mean there are no opportunities for smart investments. In fact, certain types of hotel properties in the US are ready and waiting to be snatched up at competitive prices and deliver a lucrative return for smart real estate investors.
The Impacts of COVID-19 On Hotel Real Estate in 2021
The global health crisis affected hotels more than almost any other type of real estate through 2020 and 2021.
Travel restrictions and lockdowns that were implemented across the US throughout 2020 and 2021 had immediate impacts on the hospitality sector.
Occupancy rates across the US dropped from a weekly average of 60% to as low as almost 20% in the height of the pandemic in April 2020. Revenues across the hospitality sector have been down with RevPAR cut by almost 80% YoY in 2020.
Minimal bookings and local mandates led to temporary closures of many properties. After this, the first wave of COVID passed and summer weather arrived. Families started taking vacations and occupancy rates saw a lift, jumping to as high as 50% in October, but then dropped back down to 40% by the end of 2020.
Another wave of COVID hit and the downturn continued. The worst-hit areas were full-service hotels and properties situated in major urban cores such as New York and San Francisco. Smaller more scenic properties were still taking a hit but the pressure was less felt.
The rollout of the vaccines throughout mid-2021 and loosening of restrictions on travel and gatherings means that for the latter part of 2021 and beyond we can be hopeful for a continued upturn in the hospitality industry. However, the pandemic has not disappeared completely and it has changed the way people travel. Some of those trends will be here to stay.
Let’s take a look at some of the most notable trends that those investing in hotel real estate need to pay attention to in 2021.
The Current State of Hotel Real Estate Investment
The pandemic has had and continues to have noticeable effects on hotel real estate but it’s not all doom and gloom. Investment continues as smart investors look to the future and continue to see the value in hotel and hospitality assets.
Hotel investment has not stopped in 2021. Private equity groups and high-net-worth individuals have continued being active in the market.
In 2020, $24.5 billion was raised for investments targeting hotels and hospitality. This matches investment capital from 2016. This continuous flow of investment into the sector shows that hotel real estate is still a solid investment and that smart investors are looking for long-term returns.
Opportunistic capital is ready to mobilize on distressed assets. Now is a great time to invest for many because the current uncertainty and downturn have led to amazing deals ready and waiting for the savvy investor. In addition, this is allowing nontraditional investors to get in on the hotel real estate pie at very competitive prices.
Work From Home
One of the biggest changes in behavior we have seen across 2020 and 2021 is the switch to remote work. It is estimated that 70% of the top income earners are now working from home in the US. But what does this mean for hotel and hospitality real estate?
Hotels will now have to look to take the “home” out of “work-from-home”. As record-breaking numbers of people are purchasing homes in resort communities hotels need to adapt to continue to appeal to the vacationer who is now looking for a different type of getaway – one that is longer and in which they can work comfortably. For example, Pitkin County hit 3.1 billion in property sales on January 3, the highest since 2006. This shows the boom in resort communities that are prominent in this part of Colorado. Hotels now have to pivot their offerings, focusing on quiet, comfortable, work-accessible spaces that can compete with vacation properties.
Resort Properties Pivoting to Retreats
A key trend that we have seen in the hospitality sector that we can expect to stick around is a rising demand for more “retreat” style properties.
There is an increased demand for hospitality properties that offer amenities such as:
- Co-working and Office Spaces
- Fitness Areas
- Outdoor open spaces for recreation
In the US right now there are a lot of people who have been living by themselves throughout the pandemic, or far away from loved ones, and unable to travel. As such they are starved for connection.
People are looking for an intimate retreat experience that allows for real connections and marks a move away from typical resort vacations. People want to connect with one another. They are also looking to connect in properties with large outside spaces that can allow for gatherings of people in a safe way.
It is not only the connection that many are looking for. But lockdowns have had serious impacts on both the physical and mental health of the population. Wellness retreats and a focus on health-conscious travel will be where hotel and resort real estate see a fast resurgence to pre-covid stability.
In addition to retreat-style vacations, there has been an uptick in demand for more cabin-style products in comparison to lodges of the previous years. Families, couples, and other groups are looking to get away but also maintain a safe social distance from other groups.
Many hotel properties will need to rethink their interior design to stay competitive in the post-covid world. Guest preferences drive hotel real estate design.
As travel is resuming in 2021, there is a noticeable preference for larger private accommodation in which guests are staying for longer periods of time.
Extended-stay hotels and vacation rentals are seeing higher demands in comparison to short-stay properties. We can expect this segment of hotel real estate to grow in the coming year and consumer needs have shifted.
Hotel real estate will see increasing competition from vacation rentals. However, there is plenty of room to compete with smart architecture and interior design that addresses the new needs that many guests will have. Dedicated areas for work, larger spaces and other changes can help hotels appeal to guests looking to work remotely or stay for extended periods of time.
Guests needs not only influence design, but also technological advancements.
The pandemic highlighted many areas in which crowded hotel spaces can be unsanitary. Even with the number of cases dropping and a high percent of the population vaccinated, many are still extremely cautious about travel and are taking more time to research the protocols that hotels have in place to protect their guests.
Technological advancements such as hotel properties that allow for keyless entry and do not require an in-person check-in are becoming a priority for guests. Food delivery, mobile reservations, room service with limited contact and other amenities should be designed into the infrastructure of new hotels.
Additionally, we have seen density sensors become popular across a range of industries including in hotels. Even with restrictions wavering on limits for people within enclosed spaces in many states, several hotels are still seeing the benefit in keeping their own restriction in the number of people within their locations for the additional trust and reassurance that it brings to their guests.
Density sensors can be used to efficiently manage traffic flow through areas of the hotel. Real-time updates on overcrowding will allow hotels to monitor and manage capacity in areas such as the lobby, restaurant, spa, fitness room and more.
Moving away from COVID, another clear trend we are seeing in hospitality is the pressure to prioritize real estate investments with social impacts in mind.
Globally and nationally, commercial real estate has a role to play in promoting Environmental, Social, Governance (ESG) principles. Investing in hotel real estate presents the opportunity to accelerate meaningful change.
Striving for carbon neutrality has been a particularly hot topic. Numerous hotel brands like Accor, Hilton and IHG, have aimed to halve their carbon contribution over the next decade.
In terms of social impact, we most notably see heightened social awareness for Diversity and Inclusion. D&I initiatives that factor in gender and race, intellectual capabilities and mental health concerns along with many other areas need to be factored into hotel real estate – from development to disposal.
Consumer behaviour is continuing to move towards ‘off-the-beaten-track’ adventures. Hotel companies are increasingly expanding into more ‘local’ destinations and trying to provide highly localized experiences.
Hotel real estate investors need to think about the communities they are entering to ensure a successful endeavour. The right balance needs to be found between meeting your financial and brand vision, whilst respecting local customs and regulations.
The value of your hotel asset is directly linked to its cash flows. Following ESG principles can often make for smart investment decisions. ESG-compliant assets can often generate more cash flow and find a higher exit value.
According to Skift, 53% of travellers are willing to pay more for environmentally sustainable products.
Smart hotel real estate investors will be the ones who can live up to these consumer expectations for environmentally friendly and socially conscious projects.
Are you looking to make an investment in Denver commercial real estate? U-Collective is an expert team of local real estate brokers who are ready to guide you, specializing in everything from hospitality and industrial to retail and office properties. Get in touch with our team today to get started.