Renovations: Meeting Changing Market Demands

Address how changes in market culture lead to changes in ownership and increased upgrades/renovations

By Fred B. Roedel, III Partner & Managing Member, Roedel Companies, LLC | November 27, 2011

We have all been through a very trying economic period in the hotel industry during the past few years. Customers are continuing to expect more features & benefits from hotels, brands are challenged to design and implement brand standard changes that differentiate their product and provide the investor the opportunity to maximize revenues and market performance and Owners are constantly challenged with meeting their return on investment requirements and expectations while trying to keep up with the changing culture of customers and brands.

This constantly evolving environment will cause some owners to divest of assets versus investing in them and provide an opportunity for other owners to position their hotels to maximize their revenue, free cash flow and long-term investment return as markets improve.

Being the Best Hotel in a Market

The objective of any hotel owner/investor should be to develop and operate a hotel that performs at the top of its market. Every market is different in some way, but what is not different is that the paying customers ultimately determine what hotel will be a top RevPAR performer.

One key culture change in the hotel industry is that customers are expecting hotels to provide them with similar, if not better, features and benefits that they have in their own homes. Examples include faster high speed internet, HD television content, rooms with quality furnishings and finishes and an overall experience that lets them relax while they are not in their own homes. Today’s customer are experienced, they know what they like and don’t like, they can determine the overall condition of a hotel very quickly, they recognize if a hotel is well maintained and they make their purchasing decisions accordingly. If owners allow their assets to become poorly maintained and don’t stay on top of their respective markets, to know if and when they should be investing in certain improvements, they will have little opportunity to capture the market that does exist and maintain their overall investment.

Three years ago our firm made the decision to renovate all of the guestrooms in one of our hotels. This particular property consistently received very high quality scores from the brand and we had no issues with our customer base, but the hotel had been open for 8 years and its decor had become dated against the latest standards of the brand. Most thought we were crazy to be investing the dollars we did during that challenging and worsening economic period. That investment allowed the hotel to maintain its customer base, pick up additional accounts that had been staying at “newer” hotels in the market and we have since been able to drive rate more aggressively with the improving market. We did not renovate the entire property; just the areas that, if not improved / renovated, would most negatively impact our ability to maximize occupancy and revenues. With the improving economy we have the plans in place to renovate the balance of the hotel in the next year.

Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.