Embracing changes in the hotel industry

While hotels are still reeling from the impact of the COVID-19 pandemic and are working to adopt new technologies as well as repurpose properties in the short term,  there are more changes that hotel owners and developers need to consider in the long term.

The hotel sector remains heavily hit by the COVID-19 pandemic. Hotels are still operating on limited capacity due to restrictions on travel and tourism.

While it remains uncertain when demand for travel will return to pre-COVID-19 levels, what is sure for now is that there is no going back to the old normal of hotel operations.

Thus, now is the time for change and innovation in the hotel sector.

“With the emerging challenges and trends in the sector, it is important now, more than ever, that hospitality players pivot their properties to new opportunities,” Santos Knight Frank said in its report Hospitality Sector Banking on Domestic Tourism to Drive Recovery.

Dropping occupancy levels

With the country still in some form of quarantine, only select hotels are currently allowed to operate. For areas under enhanced, modified enhanced and general community quarantines, only hotels accommodating certain types of guests are allowed to operate.

Among these are hotels with long-staying guests; transiting foreign guests; distressed overseas Filipino workers (OFWs); repatriated OFWs; Non-OFWs required to undergo mandatory facility-based quarantine; stranded passengers; employees of agencies and instrumentalities of government; health-care workers; and employees from other establishments such as the BPO industry.

 SKF reported that during the enhanced and modified quarantine period only around 43 percent of hotels within Metro Manila central business districts remained operational. This caused the overall occupancy level in the metro to plunge to 25 percent during the period.

While the return of demand from travel and tourism remains uncertain, SKF said leisure demand from the local market has the potential to restart the industry.

“Those that continued to operate posted 30- to 95-percent occupancy levels, or around 58 percent on average,” SKF said, adding that most of the rooms were occupied by BPO employees and other essential workers.

This further dipped during the general community quarantine period with operating hotels’ registered occupancy levels between 25 and 95 percent, averaging at 50 percent.

“Occupancy has dropped drastically over the last couple of months that slumped hotel revenues, and the global tourism market is still far from going back to pre-COVID-19 levels,” SKF associate director for Investment & Capital Markets Kash Salvador said.

Acquiring distressed hotels

“At this point, some investors are on the lookout for distressed hotels to acquire. It is very important now, more than ever, that hotel owners and operators adapt and innovate to make use of their real estate in the changing times of today,” Salvador added.

Responding to change

New trends in the hospitality sector such as the use of digital platforms have also emerged and players need to adapt.

“The use of digital platforms has been giving the tourism and hospitality sector a boost and will open more opportunities in the future,” SKF said.

“The use of online booking platforms and contactless payments provides safer and more convenient transactions during and post-pandemic,” it added.

Operational hotels have also begun implementing new health and safety protocols.

SKF said these new measures will be a key consideration of guests and travelers in the future.

“Hotels will be subjected to health and safety protocols such as thermal scanning, social distancing measures, maximum of double occupancy rooms, and provision of sanitation kits to guests,” it added.

Repurposing properties

Apart from implementing health and safety measures, some hotels have also responded to the pandemic by repurposing their properties to cater to new markets.

“Hotels during the lockdown and after became BPO offices and temporary dormitories for their employees. This is to ensure service delivery to their principals during the pandemic, “Lobien Realty Group CEO Sheila Lobien said.

She said that given the current market, hotel operators need to adapt.

“For now, those within the Metro or near BPO sites and corporate offices, can offer their rooms and facilities as temporary work areas or accommodation for BPO employees,” Lobien shared.

Apart from catering to BPOs and essential workers, hotels can also consider converting their properties to flexible workspace, long-term residential or serviced apartment contracts and co-living arrangements, said Cushman and Wakefield Philippines director for research, consulting and advisory services Claro Cordero Jr.

Cordero, however, said that there are hotel owners who have existing management contracts with franchise companies that restrict them from converting the development into other uses.

He said these hotels should then consider embracing more technology in their processes and operations in the short term, as this will help them capture long-term opportunities in the market in the future.

These hotels may also reinvent organizational structures and job protocols in view of the new service level expectations of guests when they come back in the future;  re-conceptualize ever-challenging food and beverage functions; rethink loyalty rewards and negotiate with hotel franchise companies to have short-term reductions in fee payments, Cordero said.

Delay in upcoming supply

SKF said the current pandemic is also creating a delay in the completion of new hotels in Metro Manila. It added that Metro Manila is expected to welcome an additional supply of 6.800 rooms from 23 hotels from 2020 until 2024.

“Around 1,5000 rooms are estimated to be offered by the end of this year, down from the original forecast of about 2,700 rooms prior to the quarantine,” SKF said.

It attributed the delay in completion dates to factors such as extended lockdown, supply chain disruption, and new working guidelines for construction activities.

“Other operators have pushed back their target completion to a later year,” SKF said.

Local demand to lead recovery

While the return of demand from travel and tourism remains uncertain, SKF said leisure demand from the local market has the potential to restart the industry.

“Domestic travelers are seen to engage in short travel distances, such as traveling to neighboring cities or provinces, and eventually going farther distances as travel becomes mainstream again,” it said.

More challenges ahead

While hotels are still reeling from the impact of the COVID-19 pandemic and are working to adopt new technologies as well as repurpose properties in the short term, Cordero said there are more changes that hotel owners and developers need to consider in the long term.

“The challenge for hotel owners and developers, in the long-term, is their ability to change their existing business models and shake off those lingering legacy constraints,” he said.

Hotel owners and developers will also need to balance safety protocols, financial considerations and practical experience.

“At this juncture, the efforts of the hotel sector to embrace new ideas and technologies to create a new level of standard and expectations in a post-COVID world will hasten its ability to recapture the profitability levels and allay investors’ expectation,” Cordero said.

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