Luxury hospitality experts are bullish on wellness, but with caveats. Investors and developers can find great opportunities within the wellness hospitality sector, but they need to be able to separate the wheat from the chaff.
Since the pandemic hit, wellness has become ubiquitous. Businesses of all shapes and sizes are trying to capitalize on its popularity. This is particularly the case in the hospitality space, where companies may be swayed by inflated statistics (the global wellness economy is forecast to reach $7 trillion by 2025; wellness tourism, including hot springs, will top $1.2 billion by that time, shouts the Global Wellness Institute).
As Piers Schmidt, founder of Luxury Branding notes, “Wellness has become such a huge territory that it’s difficult to analyze. There are a mystifying range of typologies within the hospitality space, from hotels that have one massage room through destination resort spas over to medi-spas like Chiva-Som and SHA.” Even medical operators like Mayo Clinic are looking to increase their wellness offerings, he notes.
It’s such a splintered landscape that it’s often difficult to navigate, he says, making it challenging “for investors to buy into an amorphous wellness concept.”
This amorphous nature opens the door to wellness washing. “I see so many product companies and big box hotel companies trying to ‘well-wash’ their products,” says Ingo Schweder, CEO of GOCO Hospitality, a wellness hospitality development and consulting company. “They come up with gimmicks and meaningless wellness messages with questionable intrinsic healing qualities.”
Schmidt also notes, “For investors, we are still examining if this massive interest in wellness is a pandemic blip…or did the pandemic catalyse something that can’t be stopped? We still haven’t reached the tipping point where big money is going all in on this. For that to happen, he says, concepts have to be stress tested.
The stress testing is currently being conducted at the ultra-high end of the market. According to Chris Graham, managing director of Graham Associates, a real estate and resort consultancy, as wellness hospitality proves its bona fides at that level, there will be a trickle-down effect, as interest among mass audiences is already there. That’s why, he says, “development and investment companies looking to add wellness options will be pushing against an open door.”
Schweder sees a more democratic landscape for wellness hospitality in the future as well, particularly surrounding the world of hot springs resorts. These are often good value, he says, as these are usually located in rural areas where real estate is not as expensive.
Operating cost challenges
Another thing for investors to consider is the dramatic rise in operating costs, which particularly impact properties with energy intensive offerings like spas.
According to the Wellness Real Estate Report 2023, published by RLA Global in partnership with HotStats, average total revenue per available room (trevpar) — which includes revenue from all departments, including food and beverage sales and spas — increased by more than 53 per cent year-on-year at hotels classed with ‘minor wellness’ offerings (those generating less than $1 million) or 10 per cent of total revenue from wellness and leisure. Trevpar rose by nearly 47 per cent, at ‘major wellness’ properties, where wellness and leisure account for over $1 million or 10 per cent of total revenue.
It is worth noting however that the sector has yet to see a return to pre-pandemic levels with major wellness hotels showing the slowest recovery.
“Although the category of major wellness hotels takes all the plaudits for property-level top-line performance, it does come with higher operating costs, which results in lower GOP-to-revenue ratio and operating profit performance to total revenue. This is precisely where the minor wellness category indicates potentially better cash returns, [and this is also why] investors need to give a serious consideration to the overall wellness concept of the development at the planning stage,” said Roger Allen, Group CEO of RLA Global.
The Future of Wellness is Social
While the present landscape is all over the map, one trend that seems to be developing into something very real is the idea of social wellness.
According to the National Institutes of Health, there is evidence that people who are socially engaged and active tend to live longer and be healthier physically and mentally. As GOCO’s Schweder says, “The growing recognition that community and human connection are essential components for longevity and wellbeing is creating a need to create structures to enhance social wellness.”
Indeed, we are seeing a surge in social wellness venues designed to create community and promote interpersonal interaction. Fitness clubs, nightlife venues, and medi-spas are all getting into the space.
So, hospitality brands investing in wellness would be wise to re-imagine their businesses through the lens of driving more human connection.
As the Global Wellness Institute noted in its 2023 annual trend report, “We’ve long known that the “social” was the magic driver of the wellness market, but what’s unfolding with “social wellness” is different. Human connection is no longer mere fallout from wellness experiences –it’s increasingly becoming the main point of them. We’ll see a surge in new concepts that put social programming at the center, perhaps even more important than the wellness experiences themselves.”
To support its argument, the report cites the example of Peoplehood, a venue for guided group conversations, developed by SoulCycle’s founders. Other models include Othership in Toronto, which builds community through a social bathhouse experience and Groundfloor, a membership club in San Francisco, invented to “cure social isolation.” It has a wellness studio, an outdoor gym, a library and social lounge where they host supper clubs, comedy shows and art classes, all in the effort to foster connection.
Ultra-luxury hotel brands are jumping into social wellness feet first.
Major players like Six Senses and Aman are playing with a blended, revenue model of resort + residences + local wellness club at urban properties. The first Six Senses Place is slated to open in London late this year, while Aman is planning to include wellness clubs in properties opening in Miami and Beverly Hills in upcoming years.
This summer, VICI Properties, best known for its investments in gaming properties, put $150 million into the coffers of Canyon Ranch. The aim – to expand the wellness brand by opening both resorts and social clubs in urban markets. The first dedicated membership clubs will open in Texas over the next two years. They will feature state-of-the-art fitness and spa facilities, along with co-working spaces and venues for special events.
But in fact, any hotel, even if not high-end or not 100 percent dedicated to wellness, can include spaces designed for spontaneous interaction, a key element in social wellness. Schweder says such spaces can be built into most property plans, whether through fitness areas, food and beverage outlets, and/or co-working and lounge spaces. “Developers should think about making spaces less dense and intense, spaces where people can breathe and just be,” he says, “instead of trying to monetize every last square foot of space.”