2021 development expectations will exceed availability
 
2021 development expectations will exceed availability
13 JANUARY 2021 8:47 AM

Many risks remain for hotel owners willing to dive back into development right now, including a limited labor pool available to finish each proposed project by the end of 2022.

Hotel occupancies have seen slow, albeit inconsistent, recovery over the past few months.

And with the momentum of the new year at their backs, hoteliers have been presented with an opportunity for optimizing the return to mainstream travel in 2021—as long as they are willing to leave their comfort zone. Hotel companies remain in a difficult position, with many construction and renovation projects from early 2020 still postponed until more concrete economic recovery takes off. Timing is everything, and without a crystal ball to guide them, hoteliers will have to make tough decisions about when to resume work on the projects they have deferred.

The challenge facing hotels is twofold. If hoteliers resume development now, they risk completing projects early, leaving them dormant in a market where it has yet to fully resume. If they decide to wait too long, they risk interrupting business during key periods of economic resurgence. Deciding when and how to make that call will be among the first hurdles hotels face this year—and possibly one of the most significant.

There is a lot to keep track of right now. For starters, ownership should meet with hotel operators or the team managing their assets to understand their available budgets, priorities and wish lists. Many hotels have been taken offline this year and starting them up again is going to take time, attention and capital.

There are many properties operating right now that have chosen to defer select areas of maintenance. These assets must be maintained, and this remains a priority across the industry. Once ownership is sure their operating assets are taken care of, then they should turn their attention to renovations.

At this point, owners are racing against the clock. Just as hotel demand remains ready to boil over once conditions for travel improve, so are construction needs. Product improvement plans have been pushed down the road, but there is only so much runway left for those deferments. Hoteliers must prepare to pull the trigger on their development goals soon or risk sitting at the back of the line as their competition within hospitality and other industries snap it up.

This is going to be a long-term challenge for the industry, one that won’t resolve itself over the course of 12 months. In 2020, every asset that was in a refreshed cycle saw its timeline pushed back until the end of 2022, and many of those with access to capital last year spent it on distressed assets in need of significant work. Current signs point to a very busy fourth quarter of 2021, with most goals and deadlines converging in 2022. There simply is not enough labor available to finish every proposed project by the end of next year, and whoever has the capital and is willing to take the risk in the first few months of this year will have the advantage to reposition themselves alongside a recovering economy.

The question remains: Are hoteliers willing to take bigger risks now in order to gain access to better pricing and plentiful labor options? For those owners willing to take a chance, an abundance of labor is available and willing to work. This labor pool will dry up quickly throughout the year, eventually burning off over time as faith in the market improves. Identifying the right time to follow through with these investments is of utmost importance and will fluctuate heavily based on a property's positioning and the current state of the asset.

Many risks remain for hotel owners willing to take a leap back into development right now. Operators still require a great deal of capital in order to preserve their hotels and appease lenders. The year to come has many reasons for optimism, but the status of the economy remains shrouded in unknowns, not the least of them a transition to new political leadership.

Much of what is taking place remains outside of hoteliers' control, but industry leaders cannot afford to sit on the sidelines and wait for the stars to align before making decisions about the future of their properties. Now is the time to meet with lenders, understand the key data points driving your market and identify all available options.

Once everyone feels a common positivity about the state of the industry, construction and renovations will be front and center in the minds of every operator, and by then the real opportunity will have passed them by.

It is a time of turning a new leaf, trying different things and taking chances, but there is no room for blind optimism. Hoteliers must make intelligent, informed decisions based on hard data, and backed up by the experience and insight of veteran leaders within the industry. Using these tools, only they will know what is best for each of their properties on a case-by-case basis. However, when business begins to improve, it will not pay to be late to the party.

Stephen Siegel is principal of H-CPM (Hospitality CPM).

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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