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Leisure shift drives wellness real estate during the pandemic

18 August 2021
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RLA Global

Hotels with wellness revenues exceeding US$1mn generated nearly 75% more in TRevPAR last year than those with wellness revenues of less than US$1mn, according to the latest Wellness Real Estate Report from RLA Global.

Hotels with significant wellness offerings were able to harness pent-up leisure demand to drive both revenues and 65% higher ADR, despite restrictions to travel.

The pandemic cut revenues and profits in 2020 due to lockdowns and restricted airlift, but also led to an increased demand for wellbeing and wellness offerings as guests focused more on health, both mental and physical.

Roger A. Allen, Group CEO, RLA Global, said: “Uncertainty and restrictions have meant that tourism has a domestic leaning, with money being saved on flights and transfers, and reallocated to local hotel, leisure and wellness experiences.

“Hotels which can draw in the domestic leisure market have been able to recover more quickly than hotels which operate a room-only and limited-service model. Hotels with major wellness offerings were better positioned than those with wellness revenues of less than US$1mn, allowing them to drive revenues by attracting local guests to use their F&B, spa and additional leisure & sport facilities, pools and beaches.”

RLA Global cautioned that more extensive wellness offerings typically had higher operating costs because of increased energy, maintenance, utility, and payroll expenses, operating costs which meant that close attention must be paid to ensure profitability. The company noted that during the height of the pandemic, government support partially covered some operating costs, most notably payroll.

Michael Grove, Chief Operating Officer, HotStats, which participated in the report, said: “During the early stages of the pandemic, resorts and luxury hotels were hit hard by the steep drop in international and domestic leisure demand and loss of ancillary revenues combined with their relatively larger fixed-cost base. However, with the ramp up of leisure demand, specific demand for staycations and focus on wellbeing, wellness and leisure resorts have seen record level ADRs and with a lower cost base versus prior pandemic, returned to profitability significantly quicker than city centre business hotels.”

The GOP margin of major wellness hotels – those with annual wellness revenues exceeding US$1mn – was narrower, at 6.6%, than properties with minor wellness (10.2%), it was 4.1% higher than GOP margins in hotels with no wellness. This indicates that running a major wellness operation doesn’t necessarily lead to a better bottom-line performance.

Allen said: “Those considering investing in wellness must take a long-term approach to understand if the wellness offering will provide a competitive advantage and whether the revenue generated will provide a reasonable rate of return.”

The pandemic has accelerated a number of trends in the wellness and wellbeing space, amongst them demand for secluded privacy, with guests seeking villa-style resorts and hotels that offer a design with a clear covid-safe environment and larger common areas.

Branded residences also met demand for stays in less crowded, non-urban environments, with the additional ability to work away from the office attracting potential owners as well as hospitality companies looking to add an additional string to their bows.

Riyan Itani, MRICS Director of International Development Consultancy, Savills, said: “The concept of branded residences, from its inception, has been based on the provision of services and facilities that one would typically find in a hotel. Wellness and wellbeing amenities have therefore been a prerequisite of any competitive branded project. As the global markets mature, the provision of a pool, a gym and concierge services in a building is no longer seen as competitively differentiated. We are now seeing more experiential aspects being added as standard. A number of operators are exploring more medicalised and diagnostic services and facilities either on-site or in partnership with nearby medical centres.”

Medical wellness saw a boost from the pandemic, with centres combining best practices from Eastern and Western medical disciplines. While the hybrid medical wellness traveler typically stayed longer and spent more than the average wellness-only tourist, the costs involved in the facility set-up were generally higher as well.

An option for those investors wishing to meet the demand for secluded fresh air accommodation was glamping, a market which was predicted by Grandview Research to expand to US$5.41bn by 2028. North America was leading growth in the trend, which originated in safari trips in Africa and are now also spreading across Europe.

Allen said: “Glamping is gaining traction among in the investment community thanks to high EBITDA margins and low upfront development costs. We have seen a number of multi-million- dollar deals which have fed the need for an easy-to-develop, yet luxurious offering, with even existing bricks and mortar properties adding the product.

“As we enter the next phase of the pandemic, we are likely to see glamping move further into the mainstream and staying there, as the need for socially distant, stress-free trips meets the already-growing demand for active outdoor adventure holidays.”

A further trend which was accelerated by the pandemic and has implications across all hotel operations, not solely wellness, was the use of technology. Consumers have become adept at using wellness apps to maintain physical and mental health in their own homes and this, alongside the expansion of wellness and fitness apps, will present hotel operators with the dilemma of how to integrate and personalise suitable technology with the bricks and mortar of the hotel wellness experience.

The full report can be downloaded at https://rlaglobal.com/en/industry-reports/wellness-real-estate-report-2021

For more information, please contact
Roger A. Allen, ISHC
Group CEO, RLA Global
E-mail: roger@rlaglobal.com

About RLA Global
RLA Global is a recognized global advisory to investors, owners, developers and management companies. Specialized in hospitality, leisure, recreation, wellbeing and health tourism related to hotels, resorts, residential, mixed-use, healthcare, active living communities and destination tourism developments. RLA Global works closely with the public and private sector in the Americas, Europe, Middle East and Africa to provide conceptual planning, feasibility and financial analysis and asset management of complex properties such as resorts, retreats, destination assets and wellness & spa related operations. Our advisory practice addresses the evolving landscape of the Resort & Hotel sector, Destination Planning, Leisure Experiential, Spa Consulting and Health-Wellness-Medical Tourism & Life Enhancing Destinations. For more information, visit www.rlaglobal.com

About HotStats
HotStats provide monthly P&L benchmarking for the hotel industry, collecting detailed financial data from over 6,000 hotels worldwide from over 100 brands and independent hotels, and provides over 550 different KPIs covering all operating revenues, payroll, expenses, cost of sales and ultimately departmental and total hotel profitability. For more information, visit www.hotstats.com

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