Property-improvement plans remain top of mind for many hoteliers heading into the new year, but brands may not be as rigid in their expectations as we once thought.
Hotels across the U.S. are drastically in need of a refresh, but brands are more invested in making the right design decisions throughout 2024 rather than rushing into a refresh that is outdated or inefficient. This could be a short-term trend, but it could buy some well-meaning hoteliers time and efficiencies down the line; that is, if they are willing to discuss with their brand contacts.
By and large, hotels have lagged in keeping up with wear, tear and guests’ expectations over the past two years. According to CoStar data, average daily rates were roughly $131.97 for the week of Dec. 23, 2023, down just 0.9% from the same week the year prior. With rates this high and retaining their strength for so long, it should be no surprise that guests expect the best once they arrive at the hotel.
The supply crisis affecting development materials and labor is a thing of the past. Today, the biggest challenge is the high cost of debt and the relative uncertainty of things to come. For better or worse, 2024 is set up to be an eventful year. Business owners are contending with the highest interest rates in nearly a decade and the long march toward an election in November. Hoteliers are also concerned that the industry’s aforementioned rates may fall off at some point due to any number of factors, and this affects forecasting and expectations for the near future.
The confluence of all these trends has resulted in fewer properties trading overall and less of a rush to build. In fact, 2024 is shaping up to be a strong year for hotel design efforts. Brands and developers are reconsidering some past design decisions in the first half of the year and may implement their decisions in the fourth quarter or early 2025.
On the surface, this strategy seems like more cautious decision-making from brands. In fact, they are taking a chance by adjusting their designs, particularly in larger or boutique hotels. Successes over the past three years have motivated brands to give their star leaders more leeway when making decisions. The drive for more unique, visually shareable locations has also driven a desire for less conservative design overall.
These trends have opened all parties up to new opportunities in materials and footprint but may take time to implement. The industry is letting go of design expectations related to public spaces and better understanding how travelers interact with the guestroom. More than ever, hoteliers are interested in making hotels into a statement, creating interesting and unique places for guests to explore and experience.
Delayed PIPs are often welcomed by hoteliers, but this extra time between refreshes is a double-edged sword. The longer a hotel goes without a refresh, the more tired it can appear. Realistically, costs are also resisting pressures to lower. If hoteliers are hesitant to address PIPs due to concerns about pricing, waiting them out isn’t going to help their situation. Instead, it will widen the guest experience gap between their hotels and their competitors. As such, if possible, owners should find ways to exercise their PIP while prices have stabilized. Other hoteliers with greater design ambitions should reach out to their brand and development partners to discuss expectations throughout the year and whether or not there is flexibility for adjustments.
Regardless of these trends, the hotel industry anxiously awaits any downward movement in Federal interest rates. Should the Fed budge, it will trigger active development. If hoteliers approach brands with a plan to alter their PIP rather than delaying it, they will likely be more successful. They may have a chance at moving their PIP's goalpost if they bring a plan, are realistic about budget goals and prepare to compromise.
Stephen Siegel is principal of H-CPM (Hospitality CPM).
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