Though the coronavirus pandemic walloped a number of key real estate investment segments, hospitality took a major beating. In 2020, hotel occupancy rates plunged to record lows, and now, even as travel picks up again, many properties aren't seeing bookings that mimic pre-pandemic levels.
This especially holds true for hotels near business hubs. Though leisure travel has been in high demand this summer, it could take many years for business travel to resume at normal capacity -- if that even happens at all. In an age when it's easy enough to meet with colleagues remotely over Zoom, the future of business travel is in serious jeopardy.
Furthermore, while some extended-stay hotels saw decent occupancy rates during the pandemic, others have remained sluggish due to that same lack of business travel.
All of this begs the question of what to do about hotels with an outlook that isn't all that bright. While things could still pick up for hotels in the coming years, some may not have the resources to hang on and wait. It's for this reason that some hotels may want to consider a hybrid model of serving nightly guests and long-term renters.
Should hotels go hybrid?
Hotels with high vacancy rates may want to look at converting some of their rooms to residential units and renting them out on a long-term basis. Doing so may actually be a pretty easy sell as far as tenants are concerned.
Just as many higher-end apartment buildings offer luxury amenities like swimming pools and onsite fitness centers, many hotels offer these perks for guests. As such, it's easy to see why someone in search of a rental might be more than okay with living in a hotel apartment -- and getting to enjoy the good life all the while.
That said, converting portions of hotels into rental units is not an easy task. The construction might temporarily force hotels to shutter to nightly guests, thereby causing them to lose revenue at a time when they can't afford to, and the conversion process could prove to be quite costly.
While hotels are better suited to residential conversions than other commercial properties, such as office buildings and malls, there are still a number of key challenges to grapple with -- from zoning requirements to reconfiguring plumbing and electrical setups.
There's also the notion of sharing common areas with come-and-go guests that may not sit well with some renters. Building residents tend to have mutual respect for one another because they ultimately have to coexist under the same roof.
On the other hand, hotel guests are less likely to adhere to the basic rules of common courtesy. After all, they're on vacation, which means they may be less apt to stay quiet at night. And if they violate the rules, the consequences are less severe -- they don't risk eviction, but rather having what could be a two-night stay cut short.
Still, the idea of living in a hotel might appeal to enough renters that it's worth giving hybrid setups a go. Though there are risks and expenses involved, hotels that are really unlikely to see their occupancy rates return to pre-pandemic levels may need to get on board with the idea of going hybrid if they want to remain sustainable for the long haul.