The hotel industry ended 2022 in its most stable state since before the pandemic, and despite lingering uncertainty the sector is not pausing for a breath before resuming development. While U.S. hotel construction is up for the first time since the end of 2020, most of these projects consist of renovations and conversions of existing properties as a result of new brands arriving all over the U.S. via Marriott International, Hilton, Hyatt Hotels Corp., Wyndham Hotels & Resorts and Best Western Hotels & Resorts.
Hoteliers know it isn’t easy to compete against properties with a fresh coat of paint, let alone a new brand. New brands and updated properties have a magnetic quality when attracting new guests—as well as higher rates. The recovery cycle has not yet reached the point where robust investors have begun acquiring existing properties in bulk. Instead, they are funneling their money into conversions and existing property improvement plan requirements as a means to maintain market relevance and increase profitability.
Fortunately, this is a strategy that investors of any size can be part of and presently it pays to be agile when it comes to these improvements. Enhancements to a hotel at this stage can produce gains in rates and guest scores. To realize these gains, hoteliers should examine their property from head to toe in search of the updates or improvements that will have the most significant impact on their ability to drive average daily rates. With debt still more expensive than many investors have become accustomed to in recent years, hotels will be challenged to ensure the improvements they commit to will focus on growing rates. This is of greater importance for properties looking to consider a conversion to new brands.
Fortunately, for much of the industry, there has been a more significant degree of stability in material costs and availability of goods and materials for development lately as we have been exiting out of the pandemic.
Today, properties with the clear plan are scoring the contracts. Operators should work on identifying their objectives and the scope of their next project and setting a timeline for achieving them.
It’s refreshing to watch developers and operators alike take a deep breath as they survey the landscape as it has emerged—changed, possibly forever, but stable. Fortunately, the hotel industry is used to adapting to new things, and it’s time to get to work.
Stephen Siegel is principal with H-CPM.