The Hotel Market – COVID Is At Work

For a long time, the middle market hotels have been the growth behind the U.S. hospitality market. The established brands like Hilton Garden in and Courtyard by Marriott have led the way, followed by many new brands that have started, e.g., Aloft, and element. The key to these products was:

• Good business location;
• Good clean rooms with complimentary wifi;
• Free breakfast;
• Happy hour or a bar where you could get a drink; and
• Some form of shop that provided snacks.

Well, COVID once more has sent a wrecking ball through the industry. Free breakfasts, elevators, and happy hours are out in the world of social distancing and COVID. Business travel is way down and how much it will return is debatable. Among my clients, the majority says that while they will start traveling again, primarily when their clients want to see them, they expect it to be at 50% of the pre-COVID levels. As a result, like the U.S. retail industry, we may have too much supply! As a result, I would expect rates and values to fall.

However, what is very interesting is what is happening at the two extremes of the industry.

Luxury Hotels

During June and July, many luxury resort and city hotels were catering to the wealthy who had their international travel plans disrupted. However, in August, unexpectedly, they found no one was ready to return home, and demand was increasing. Guests were all looking for a second, third, or fourth pseudo home, and finding luxury hotels met that criteria. As many of these hotels’ clientele can work from home and are schooling from home for the foreseeable future, there is no need to be tethered to their usual residences. Instead, they are interested in multi-month hotel bookings to bypass a cold-weather span of locked-down living stylishly.

Not only do these properties offer a change of environment, but many guests “do not feel safe in [their own] homes with staff members coming in and out, without proper protocols in place,” said Ed Mady, the regional director of the Dorchester Collection. The Beverly Hills Hotel and Hotel Bel-Air, managed by the Dorchester Collection, have seen an increase in 90-day bookings since the advent of  COVID-19, primarily from L.A. natives. The Dorchester Collection properties all have an on-site nurse and a dedicated director of risk management to ensure full compliance with CDC guidelines.

At Timbers Kaua’i’i in Hawaii, over 25 percent of the guests 30+ night stays booked. On the East Coast, Gurney’s Montauk and the Ocean House in Rhode Island have many guests staying for a month or more during the fall.

As a result, many hotels are pivoting to meet this new demand. Auberge Resorts, which owns 19 hotels worldwide, has experienced a 300% increase in the length of guests” stays. As a result, it is offering “Remote With Auberge” packages. Some of these packages for two months offer private tutoring services for children, personally stocked in-room kitchenettes, pet care, and laundry with a 30 to 40 percent discount.

However, even with these discounts, it is not cheap! A recently booked year-long stay at Rosewood Miramar Beach’s’s two-bedroom residence in Montecito, CA, costs approximately$1.1 million.

Economy Hotels

Meanwhile, at the bottom of the industry, motels are making a comeback. Initially, travel stopped for all but essential workers, truckers, doctors and construction, maintenance, food-processing, agriculture, and government workers who are always more likely to use budget-style hotels.

As the summer came, those that wanted to travel domestically and maintain social distancing by avoiding airplanes, elevators, crowds, and questionable HVAC systems turned to road trips and motels. Many of the middle-market hotels that were accepting guests had closed their spas, fitness centers, indoor dining rooms, swimming pools, and other amenities, but were maintaining their rates. Many travelers saw they now paying $250+ per night to get the same services they get for $100 per night at a motel.

Motels are typically one- to two-story properties with exterior corridors and parking lots in proximity to the 12 to 35 guest room doors, said Jan Freitag, senior vice president of Lodging Insights for the data and analytics firm STR. Often referred to a U2s because of their “U” shape and two stories. The benefits of such properties are:

• Allow guests to avoid contact with others;
• Don’t feature elevators;
• No large common spaces; and
• Each room has its own heating and air unit.

Thus, guests have a sense of control over their environment.

Besides, motels are benefiting from the nostalgia that COVID has released. Along with the demand for homemade bread, playing board games, and reading, staying in motels appeals to the fantasy of simpler times.

The perfect storm of COVID, which is damaging the middle market hotels, is saving motels from extinction, at least for the moment. Will the demand remain post-COVID is yet to be determined.

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