I don’t think there’s any doubt that hotels are in a slump.
“For the week of September 20-26, occupancy was 48.7 percent, down 31.5 percent from the same week in 2019 and up 0.1 percent from the previous week. Average daily rate reached $96.38, down 29.6 percent year over year, while revenue per available room was $46.96, down 51.7 percent from 2019.” (hotelmanagement.net)
With borders closed worldwide, a reduced number of airplane flights, and general anxiety about travel, the vacation industry as a whole has taken a massive hit this year. The hotel industry might have been hit hardest from a lack of business conferences cutting into bottom lines to cancelled vacations. Where is the silver lining? Well, this could mean more real estate investment opportunities are on the horizon.
2019 vs. 2020
Just one year ago, the hotel industry was having a record-breaking year. Travel was up, and flights were plentiful, and, in some cases, hotels were so full that reservations would need to be made months in advance. This was following a decade-long upswing for hotels, having recovered spectacularly after 9/11 to become one of the world’s most profitable industries. (hospitality.net)
Then, of course, COVID-19 hit. Stay-at-home orders and closed borders have forced hotels to close around the world. Some hotels have closed altogether, some took care of necessary renovations, and many stayed open with fewer occupants than ever.
So, Where Are The Opportunities?
Current owners of hotels and other short-term rental properties are currently facing unprecedented economic challenges. As a result, they are looking at potential defaults and massive operating deficits.
It’s believed that by the end of 2020, owners may need to foreclose or possibly sell their first mortgage position at discounts to par. These conditions could make investments of rescue capital very attractive for real estate investors.
Current projections show that, assuming COVID-19 doesn’t make a massive resurgence and an effective treatment or vaccine is found, that the hotel industry should reach 2019 levels within four years, by 2024. But the “ifs” are too many to count.
It could be time to reimagine the standard hotel.
Hotel Investment vs. Housing
The main issue with real estate investments in hotels is that it’s out of reach for many people. Big money is required if you’re planning to purchase massive buildings and pieces of land. This can be an excellent option if you’re looking for group investment opportunities, but it could be too much if you’re new to the real estate investing game.
A much better investment for people of all means is a passive investment in single-unit homes. Being a silent partner can have some real advantages by either building new houses or purchasing and flipping older ones.
Hotels as individual rentals
Travel will not slow down. Even during COVID, travellers have looked to other ways to stay safe while travelling. RVs and individual home rentals were extremely popular this summer. Looking to failing hotels that could be redesigned as individual units could be a smart investment.
Current numbers suggest that economy hotels have been impacted significantly less by COVID-19 than their more expensive counterparts. There could be some crossover here with the recent popularity of regional travel, along with staple guests like long-haul truckers.
The future of hotel design will change with more flow to outside, smaller occupancy buildings, and more individualistic/ apartment-style rooms becoming more popular. Minimal design and less maintenance staff will keep the concern of COVID at bay and also make the investment more sound and less of a constant management issue.
When investing in a volatile industry such as hotels, there are no guarantees, but this could become a very profitable area of real estate. It’s definitely one area we will be watching over the next few months.
No matter which real estate investment path you choose, Regalway Homes can help. With 15 years of experience and properties and projects all over Canada, we can introduce you to outstanding investment opportunities that could grow your investment capital! Feel free to book a consultation with us today, and we can get started putting your money to work for you in real estate!