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The recently listed DoubleTree by Hilton Atlanta Perimeter Hotel sits on nearly six acres, providing opportunities for mixed-use development. – Image Credit Hilton
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Hotel industry leaders are shifting focus to renovating and repositioning existing properties to enhance value and drive revenue. This strategic pivot is driven by high financing costs, labor shortages, and a muted outlook for supply growth, prompting hoteliers to explore creative solutions, such as adaptive reuse and mixed-use developments.
The hotel industry is witnessing a slowdown in new construction projects, primarily due to high financing costs and labor shortages. According to CoStar data, new hotel supply growth in the United States is 0.7% year-to-date, significantly below the long-term average of 1.6%. This trend is expected to persist, with supply growth anticipated to remain subdued over the next few years.
Focus on Renovation and Repositioning
In response to these challenges, hotel owners and operators are increasingly turning to renovations and repositionings of existing properties. During a breakout session at The Lodging Conference, industry experts discussed strategies to enhance the value of current assets. Eric Jacobs, chief global growth officer at Aimbridge Hospitality, highlighted the role of soft brands in revitalizing properties that might otherwise be considered obsolete. Jacobs emphasized the importance of creating unique guest experiences, particularly through food and beverage offerings, to drive revenue.
Opportunities in Adaptive Reuse
Adaptive reuse of office buildings and historical structures presents another avenue for hotel development. Jacobs noted that office buildings, currently trading at low prices, offer long-term hotel opportunities in urban markets. Historical buildings, with their unique character, also provide attractive options for conversion into hotels. Neil Flavin, chief operating officer at HVS Asset Management & Advisory, noted the potential for strong returns on investment from upgrading assets in well-performing markets.
Mixed-Use Developments and Capital Expenditure Challenges
Mixed-use developments are gaining traction, with companies like Stonebridge Companies incorporating residential and retail components into their projects. This approach allows for upfront capital collection, which can be reinvested into enhancing hotel amenities. However, capital expenditure (CapEx) remains a contentious issue. While brands push for maintaining high standards, owners are cautious about investing significant sums without guaranteed returns. Flavin stressed the importance of timely renovations to prevent erosion of business and demand.
Balancing Brand Demands and Owner Interests
The relationship between hotel brands and owners is evolving, with brands becoming more stringent about CapEx requirements. Flavin warned against delaying necessary improvements, as this can lead to a decline in business and guest satisfaction. Rob Smith, CEO and president of Stonebridge Companies, noted that brands are generally fair and flexible, provided properties deliver results and maintain guest satisfaction scores. He emphasized the importance of strategic planning for property improvement plans (PIPs) to ensure operational success.
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