Investors must assess wellness projects with the same scrutiny as other investments, according to a study from Resources for Leisure Assets.
The group warned that running large wellness operations did not automatically lead to better bottom-line performance.
The Wellness Real Estate Report found that resorts and hotels with major wellness operations, where annual wellness revenues were totalling more than $1m and accounting for over 10% of overall property revenue, generated 43% higher trevpar in 2019 than their peers with no wellness offerings.
However, simply adding wellbeing or wellness features did not necessarily translate into higher hotel and resort revenues, the report reveals. Last year's average trevpar at properties with minor wellness operations (generating revenue below the thresholds above) was actually 5.8% lower than at hotels with no wellness offerings.
The report also highlighted that running large wellness operations did not automatically lead to better bottom-line performance as associated expenses may eat away at profits. Data show that hotels with significant wellness offerings achieved lower operating profit conversion than those with minor or no wellness operations in 2019.
"There is great growth potential from the sector, but investors face challenges in assessing the overall value of the wellness offering and a transparent internal rate of return. Wellness and wellbeing investments particularly in the hospitality industry require the same scrutiny as any other real estate transaction," Roger A. Allen, group CEO, RLA said.
Evaluating financial impacts was key partially as investors and developers were exploring ways to satisfy new customer expectations and boost operational efficiency in a post-Covid era. Demand for web- enabled wellness products and remote healthcare solutions jumped, which may increasingly affect how real estate space is used more efficiently for wellness and fitness activities.
It was also essential for developers and investors to determine what portion of the property will be dedicated to wellbeing and wellness, whereby the location of the asset is also a crucial factor, according to the report. It said that resorts and hotels located at healing destinations needed a much more specific wellbeing proposition to define and differentiate the property.