Next-Gen hotel guests are checking-in and have no reservations about demanding what they want and expect in today’s hotels. This is putting tremendous pressure on hoteliers to improve the guest experience by upgrading and improving services, amenities, and accommodations to drive loyalty and repeat business.
As a result, Washington D.C.-based Tom Rowley, executive managing director and national practice lead for Hospitality and Leisure at Cushman & Wakefield, said that hotels are adding technology and workspaces to existing hotels, and newly renovated lobbies are more open than previously with small work areas, such as work bars, and larger gathering spaces.
Additionally, they are enhancing food and beverage offerings with new spaces; rooftop lounges, coupled with branded lobby bars and restaurants are prevalent in most urban markets, Rowley added, citing The Prince Kitano Hotel at 66 Park Avenue in Manhattan, which recently converted meeting space on the 16th floor of the hotel into a new rooftop bar and lounge.
Outside of resort markets, hoteliers are converting obsolete or little used amenities to more popular amenity and functional spaces, like eliminating indoor swimming pools to expand fitness facilities or meeting space, Rowley continued.
Changes in the food and beverage experience continue to evolve, according to Atlanta-based Steve Schrope, senior director of Hospitality Project Management-CBRE Hotels, with lots of upgrades and changes around operational efficiencies too that may require less staff.
He also said that obsolete services are being eliminated due to changes in guest needs and to modernize the guest experience. “This has been a long-standing trend, but getting rid of stuff continues,” Schrope added, noting, for example, that the business center is gone because guests now use personal laptops in their guestrooms, but hotels still provide a printing service.
Minor adjustments being made in guestrooms are aimed at modernizing their look and feel and accommodating new technology and how people today use it, he continued. For example, old TVs on the top of the vanity are being replaced with a flat-screen TV on the wall and computer workspaces have replaced the traditional desk.
New York-based Susie Park, executive vice president of JLL’s Asset Management team, suggested that the pandemic accelerated hotel technology improvements to provide social distancing of guests and less face-to-face interactions between guests and staff members. “This pushed hotels without a digital key option to invest in (digital key) software,” she said, noting that during the pandemic hotel rooms were offered as a “work away from home” option, while guest travel was down.
During the pandemic guests coveted hotel rooms with larger footprints, causing many owners to reconsider their mix of suites vs. standard rooms, Park added, pointing out that some of these changes have been lasting. For example, brands offer travelers greater control over their experience when booking directly through them, such as specific room locations, like near or far from elevators, or room features, like connecting rooms, that are not only important to guests but decrease costs, she added.
Schrope noted that guests are increasingly mixing business travel with leisure and vice versa, so hotel accommodations must simultaneously serve both needs. “Hotels are recognizing that there's a blend now of uses and that most guests are looking to do a little bit of both when and where they can. When traveling for leisure, guests want to use a laptop to quickly check emails, so a good leisure hotel should be able to provide a way to do that that’s comfortable and effective,” Schrope continued. He also suggested that guests traveling for work may want to have a nice meal and do a little sightseeing too.
Changes in business work patterns also have impacted hotel, but the strongest days for travel are still Tuesdays and Wednesdays, as prior to the pandemic, according to Rowley, who noted that hotels face compression on those days, which has allowed operators to achieve strong ADR levels. The shoulder nights of Monday and Thursday, however, remain slow, and based on the latest reports and Rowley’s discussions with operators, are still not back to pre-pandemic levels.
Rowley said, however, that certain markets have fared better in the return of business travel than others. He noted that San Francisco is struggling to regain prior business travel demand due to changes in tech work policies, but it has rebounded significantly in Washington D.C., Boston, and New York City.
Park also noted that the impact of changed work patterns is dependent on the market, local legislation, and corporate policy on returning to the office. She noted, for example, that in San Francisco, local leaders are encouraging employees to work-from-home due to crime, homelessness, and open-air drug use. “This has negatively impacted the return of business travel,” she contended.
Park also said that San Francisco’s convention center business has declined and is not expected to return to pre-pandemic levels for several years, as groups that had historically held their events here are opting to for other markets, like Las Vegas.
By contrast, in New York, where public officials and corporate leaders are mandating a return-to-the-office policy, there has been an uptick in business travel and hotel occupancy and ADR, with the higher rated assets performing better than three- and four-star hotels, Park added.
In general, most markets have three-day, in-office mandates, if any, and many have reverted to Monday - Friday work-from-home policies, she continued. “While this dynamic does have an impact on traditional business travel patterns, we continue to see benefits from the ‘bleisure’ phenomenon (mixing business travel with leisure), which can drive room nights on typical non-peak days—Thursday through Sunday—in most markets,” Park noted.
While owners are focused on making hotel upgrades and other changes to meet guest expectations, concern over the high cost and availability of capital is limiting investment in renovations for many hotel owners, especially those with maturing mortgages in need of refinancing.
Similar to other commercial property types, a significant number of hotels have mortgages maturing in 2024 and 2025 that need refinanced. In fact, according to the latest report from the Mortgage Bankers Association, 38 percent of hotel and motel mortgages will mature in 2024 alone.
The refi crunch is playing out in different ways in the marketplace. “Owners with a pending re-fi are conserving cash with the possibility of needing to pay down a mortgage based on current interest rates and lending policies,” said Schrope. “As such, if they don’t have to, most are not renovating at this time.
“It certainly impacts their investment strategy in terms of what capital improvements they many want to put money into,” he added, suggesting that hoteliers will do a minimal amount of work right now, while keeping performance up as much as possible, or decide to sell.
Park concurred, noting that capital improvement plans are being evaluated with greater scrutiny. “Owners are less enthusiastic about investing capital into an asset whose revenue streams have declined due to changing guest demand,” she said, noting that some owners are evaluating “soft” brands or pushing back on typical brand standard timelines, where condition and guest experience don’t necessitate immediate improvements.
“Outside of the markets with substantial overall distress and elongated return of demand we have not seen the ‘wave of distress’ that we had heard was coming,” added Rowley, suggesting that most lenders are doing a great job in working with their borrowers in this current rate environment.
“At some point, we do expect an increase (in distressed hotel properties) as the cost of capital stabilizes and re-pricing/pricing discovery takes place,” Rowley continued, noting that distressed assets are just starting to come to the market, but there are far fewer than expected, as most hotels are reporting considerable increases in ADR.
Distressed hotels are primarily in markets that are struggling to rebound, or where hotels were under-capitalized going into the pandemic but managed to hang on through the pandemic with government incentives and are now challenged with increased costs, he said. Rowley cited, for example, The Four Seasons in San Francisco, which is in default, along with several other hotels due to a limited return of group/convention demand and business travel.
Overall, major distress and discounting seem to be missing from the market at this time, Rowley said. “Looking forward, the key factors are the sustainability of rate/RevPAR growth and the potential for cuts in the Fed funds rate,” he continued, noting that the market is fairly aligned on a slowing of ADR growth, which may entice more hoteliers to sell. But he noted that there needs to be downward movement in the debt markets for investors to buy.