The U.S. travel market is on track for recovery, and hoteliers will have to take the good with the bad. Hotel brands that delayed or altered property improvement plans in light of the pandemic will want to get their properties back on track—and who can blame them?
By and large, hotel brands have accommodated owners’ needs during the pandemic with regard to PIPs, particularly for hotel purchases made throughout 2020. During this period, expectations for investments have been adjusted based on a hotel’s condition and quality scores. In some cases, hotel owners have seen renovations altered to target specific rooms, taking advantage of lower occupancy to save on costs in the short term. Other hotels have been able to buy time and defer their renovations as much as 24 months.
Typically, hotel companies prefer to purchase and then renovate hotels during downturns or low occupancy periods. However, with cash flow being at an all-time low during the first year of the pandemic, as reported by the industry, this has helped convince brands to delay any nonessential capital expenses.
At end of April 2021, according to STR, CoStar's hospitality analytics firm, occupancy in the U.S. has plateaued with an expectation it will rise in time due to a rush of pent-up summer leisure travel demand. With economic recovery just coming into sight and competition over bookings likely to keep pace with the rate travelers hit the road, hotel companies are putting more pressure on operators to complete their required PIPs. These previously deferred PIP obligations will soon begin to be enforced by the brands.
While a great deal has changed operationally within hotels, such as cleaning standards and shifts in the check-in process, changes in PIP requirements have been comparatively mild. While hotels have been rethinking operational amenities due to the onset of the pandemic, these companies are choosing not to make sweeping adjustments to social design in public areas. In other words, the pandemic has been a wake-up call for health and sanitation, but social settings are expected to remain consistent.
As the pandemic ends, owners need to start thinking hard about jumping on the recovery train before it leaves the station, and the first step is focusing on getting PIPs completed. Hoteliers who are required to complete their PIP but have had a financial challenge moving forward due the pandemic are not without options. It may be time to open a dialogue with your brand and look into the potential for waivers or deferrals. However, brands may also not be as generous as they were over the past 12 months as revenues ramp up.
Throughout the dog days of the pandemic, brands gave hotels the flexibility to avoid some of the more costly aspects of renovations. Brands may still be open to concessions, but the window of opportunity for such leniency is quickly closing as rate and occupancy ramps up.
Owners must also consider the limited supply of hotel furniture, fixtures and equipment in the market when planning their renovations. We're beginning to see pent-up demand for product, causing a shortage of key materials such as foam for seating, lumber and steel. These factors are driving up cost. Hotels seriously considering starting their PIPs in 2021 or first quarter 2022 are advised to lock in prices as soon as possible in order to avoid taking on additional costs in such an unpredictable market. This rush of demand, coupled with disruptions in global shipping and other delays, has also resulted in delivery times extending as long as six to nine months for some products.
It’s too early to say how long it will take for the U.S. to recover from the pandemic, but hotels are beginning to open up to accommodate a level of pent-up demand that is impossible to ignore. In an ideal scenario hoteliers would be able to wait out the pandemic and hold off on completing updates until the dust settles, but with so much riding on the unknown this isn’t viable for sustainable success.
Travelers prefer to stay in new rooms, and everyone in the industry will feel the repercussions of what takes place between now and full recovery. With so much to look forward to, it’s time to take this period of recovery seriously.
Stephen Siegel is principal of H-CPM (Hospitality CPM).
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