National CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
Hotels: Upgrades Versus Ground-Up
According to JLL’s “Global Investor Sentiment Survey,” “hotel investors expressed a strengthened appetite” in the product as industry fundamentals continue strengthening. But when it comes to the construction side, these same investors are more interested in buying hotels to upgrade, rather than starting builds from scratch.
The reason? A recent JLL article explained that increasingly expensive construction loans and “skyrocketing costs for materials and labor” are driving this trend. Hotel investors said that development costs increased by 10% to 30%. As such, “Many investors are now preferring to buy existing assets needing refurbishment, repositioning, or rebranding, with the return prospects often much more appealing,” explained Xander Nijnens, managing director, Advisory & Asset Management, JLL Hotels & Hospitality Group.
Nijnens also explained that high costs, which escalated beyond pre-pandemic levels, are also impacting the feasibility and likelihood of new hotel developments. This is prompting more interest in value-add investments. Common enhancements include rebranding, room count expansion, and converting underutilized spaces into rooms or food and beverage concepts or operations.
Still, “doing a value-add refit is, in many ways, more complicated than building a new site with new specifications,” Nijnens explained. “An older asset is often more challenging because you have to figure out the state of the existing asset, where to prioritize, whether it can be more sustainable, and consider what guests are looking for.”
As such, investments in, and renovation of, hotels as part of a value-add play should consider type of clientele, average length of stay and overall hotel design, Nijnens added.
- ◦Development
- ◦Economy
