Just when you thought Amazon (NASDAQ: AMZN) was out of surprises, here's a new one: It's buying a hotel. There's more to the story, though, and what it might mean to real estate investors.
Amazon's latest purchase
Amazon isn't planning to take over defunct hotels anytime soon, but it's in the process of expanding its massive Washington, D.C. headquarters. The online giant recently purchased a Residence Inn by Marriott (NASDAQ: MAR) near the Arlington, Virginia, site earmarked for its second North American headquarters, known as HQ2.
But Amazon won't be turning unoccupied hotel rooms into private offices nor converting conference space into large-scale boardrooms. Rather, Amazon plans to demolish the hotel, which is part of an 11.6-acre development known as PenPlace. An Amazon spokesperson said that while the development of the company's headquarters could have moved forward while keeping the hotel standing, demolishing it will allow the company to best maximize its new space and create a cohesive employee campus that aligns with its vision.
Of course, this brings up an interesting question: Given the way the hotel industry has struggled over the past seven months, will more companies like Amazon seek to take hotels over and use them for different purposes -- perhaps offices?
A new use for hotels?
The hospitality industry has taken a massive beating since the coronavirus pandemic began, and U.S. hotels have seen a whopping 50% decline in revenue and an 80% vacancy rate. And while hotels may recover once the pandemic ends, some may not have the financial resources to sit tight and wait.
As such, Amazon's hotel purchase could actually spark a limited trend. As more companies seek to expand their corporate space, they may start turning to hotels in the hopes of snagging a better deal than negotiating with office building operators.
Of course, Amazon clearly isn't seeking to put the hotel it's buying to use so much as tear it down and use its land to expand its new facility. But some companies may find that taking over hotels, or portions of hotels, is actually viable.
Will Amazon enter the hotel space?
Amazon seems to have its hands in just about everything, so it wouldn't be surprising to learn it's planning a foray into the hospitality industry. (To be clear, Amazon does have plans to expand into the online travel booking business, but that's not nearly the same thing as buying physical hotels and operating them.) One thing's for sure: Now's not a great time to buy up hotels or even invest in them. As such, Amazon may limit its hotel acquisition to the sole Residence Inn it plans to take down to expand its new corporate campus.
In addition to building new headquarters, Amazon is also seeking to open up more fulfillment centers (some in malls) in an effort to speed up delivery times. Amazon is already known for its ultra-efficient delivery service, but strategically acquiring warehouse space in different corners of the country could help it take its game to a whole new level.