Budgeting for current and upcoming hotel design trends
Property renovations, improving the physical design of spaces, and upgrading amenities all are inevitable for hotels to stay current with guest expectations. The current problem is that brands are simultaneously confronted by market forces that are drastically increasing the costs of executing any change while navigating some profound, ever-evolving shifts in post-pandemic customer behavior.
Therein, we often have a bit of shopper’s paralysis – too much choice that ultimately leads to inaction. And yet, if you don’t start making plans for what’s coming, you may soon find that it’s simply too much and conversion out of the hotel real estate landscape is the only move left. The two of us don’t want that to happen, so let’s discuss the lay of the land for you to better decide what capital investments will maximize your return on investment.
DEALING WITH THE CURRENT MESS
It’s 2023, yet we still need to interject the ‘C word’ – COVID – into this conversation. The backlog of maintenance updates, supply-chain issues, and inflationary cost overruns all are challenges that must be considered with any hotel design update. To give you a better sense of the scenario, Jeremy Buffam, the partner who oversees construction and development at New Castle Hotels & Resorts, an East Coast hotel management company, said it best.
“With FF&E reserves still being replenished, prioritizing capital expenditures is more critical than ever. Many hotels have deferred maintenance that will compete with front-of-house upgrades to improve guest impressions and experiences and, in some instances, meet brand requirements,” Buffam said. “Add the uncertainty that inflation and contractor shortages have added to budgets, and you have a challenging multi-step process to deploy capital dollars effectively. Several brands are looking to push sustainability projects, and the cost of this work and associated ROI will become increasingly important in the years ahead. We expect these initiatives will begin showing up on PIPs soon.”
Right now, the choice is clear. There’s no point in even thinking about room updates or SOP upgrades if a maintenance issue may impede the sale of a guestroom. But at a certain point in the near future, the pandemic logjam will be fully attenuated while, it’s hoped, contractor labor shortages and any supply chain headaches will also become non-issues. When that happens, you have to start thinking about the future of hotels and where your brand fits into the new paradigm.
THINKING OF THE FUTURE
Your first thought about upcoming challenges may lean towards sustainability and updating your hotel to meet the ever-mounting ESG regulations. Indeed, this will be of tremendous importance in the coming years, both for capital assets and construction, as well as for financing vehicles, as epitomized by C-PACE financing in the U.S. as well as the EU’s green bonds program.
To help decipher the scope of work involved in navigating this market evolution, masterful hotel designer Alessandro Munge, founder and design director of Studio Munge, offered invaluable input. Munge has been involved in many new builds and redevelopment projects, specializing in the upscale and luxury end.
“We often think about the luxury sector driving trends and influencing the market,” Munge said. “Sure, an element of research and development simmers down from the top-tier projects, but the influence is reciprocal. Activated lobbies and bar lounges with a sense of fun mostly permeated from approachable brands to more established luxury. There’s a rising new generation of four- and five-star hotels that are much more social and relaxed. Luxury doesn’t have to be stiff. Perfectly illustrating that concept is the Pendry brand, for which we’re designing two properties in Newport Beach and Tampa after successful collaborations in Chicago and San Diego. A great emphasis on social spaces and F&B ultimately creates a multi-layered guest experience that is much more engaging, connective, and profitable for the hotel.”
THE HOTEL DESIGN GRADIENT
Munge’s thoughts support the notion of the “hotel-design gradient,” where the in-vogue trends often start at the luxury or boutique categories and then disperse outward into midscale and select service as they gain momentum within the broader consumer landscape. That is, the initial buzz and awareness for something new drives guest demand in a positive feedback loop until the trend shifts from a value-add to a customer expectation.
“For years, we’ve seen the concept of signature narratives driving the design of more unique boutique properties that evoke a deep sense of place and authenticity, challenging the large conservative brands and hospitality groups to rethink their offering,” Munge said. “The next decade will be about reinvention and helping brands create new standards, redefining the room product, and re-exploring what brand fidelity means to the consumer. Because of the economic climate, I foresee many renovation projects soon in the Americas, which aren’t always easy to navigate. The guest is more design savvy than ever, so the design community must bridge renovation and innovation smartly.”
Indeed, guests are more sensitive to good hotel design than ever before. In an experience economy, guests no longer are satisfied by cookie-cutter approaches to interior spaces. And, heightened local market competition is also driving this as a bigger factor in the purchasing decision. Hotel guests have so many options and there’s so many ways to discover new hotel products that fascinating design can longer be ignored. Hotels need to create both strong digital then onsite impressions to respectively drive bookings and guest satisfaction.
“Where we’ll continue to see new builds is the mix-development sector, which coincides with evolution within the lifestyle segment,” Munge said. “It’s becoming less and less about the room value as much as it is about the crystallization of a value set. Equinox, 1 Hotel, Proper Hotel, EDITION and Nobu are great examples. And because of the brands’ strong appeal, we see an increase in branded residential development. This year, we’re completing the first integrated Nobu Hotel, Residences, and Restaurant in Toronto. We also just opened the sales office for EDITION Residences Miami Edgewater, the brand’s first residence-only property. It shows that brands are still relevant and powerful to lift pricing. But groups must adapt to the evolving market and demographic. This branded residential concept is proven within the luxury sector. Can it translate to the midscale sector? I believe so, but we need stronger brands with defined statements to carry the torch.”
THE BOTTOM LINE
To close by circling back to budgeting and incorporating Munge’s remarks, the hybrid hotel-residence model should also be on the table. Given the cost of incorporating savvy design principles or building new wellness facilities to meet that growing demand vertical, brands of all categories should consider offsetting those upfront costs with condominium unit sales – a move that concurrently can generate more baseline revenues for onsite amenities.
While looking at how this hybrid model affects revenue projections is the topic of a whole other conversation, the overall and inescapable fact is that there are profound changes afoot that will impact every hotel segment. These changes are starting slow, until they’re suddenly an immediate priority. The best bet is to map out your vision for how your property or brand will meet these forthcoming shifts in guest demands and then begin setting aside funds so you’re fully prepared to execute without needing excessive external financing.
3 other concurrent trends worth your time.
1. Wellness
Demand by guests for wellness amenities at hotels is increasing, but how design influences employee wellbeing also must be considered, especially as a means to combat inflationary wages and high turnover rates.
2 Inflation
It’s all too easy to think of the supply shock that was the pandemic as the only culprit behind the rising prices we’ve all experienced these past three years, and yet more global forces are at play – like the war in Ukraine, the reshoring of supply chains, and shrinking populations in advanced economies – that may make this a perpetual challenge.
3 Psychographics
The traditional “heads in beds” model largely was based on appealing to certain demographics and levels of wealth. The future portends a shift to people identifying and aligning according to their specific, and often niche, interests.
