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Outlook: reuse of hotels

May 17, 2021

The decline in hotel stays due to the COVID-19 crisis will lead to a restructuring in the hotel market. What options for reuse can investors access for properties in distress? Almost all types of housing provide a variety of solutions here.

hotel
hotel©Brian Jackson - stock.adobe.com

What to do with hotels that are taken off the market because of the decline in demand? New residential uses are a possible solution. Because, on the one hand, the changing society is leading to new needs in the housing market that are only partially met. On the other hand, due to their structure and diverse installations, hotel buildings possess a building structure suitable for traditional living, but also for serviced apartments, co-living, microapartments, as well as for senior living communities and novel cluster apartments.

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Source: Wüest Partner

Serviced apartments

As a form of commercial housing, serviced apartments are similar to the hotel segment. However, in times of crisis, this type of housing has higher resilience than hotels. In operation, the use of the hotel’s service facilities is possible. Also conceivable: a partial reuse of the hotel. However, combining the mostly small hotel rooms and adding a kitchen involves reconstruction costs and possibly complex reversibility.

Figure: Structure of hotel reused for serviced apartments; source: Wüest Partner

Traditional housing

The resilience of traditional residential uses, the high transparency of housing markets, and the high demand for housing in metropolitan areas and major centers argue for the redesignation of spaces to traditional housing. The advantages to be mentioned include limited letting and vacancy risks, lower operating costs, higher earnings factors and the elimination of operator risks. This is contrasted by, for example, high conversion costs due to the deconstruction of the structures, costs for a possible addition of balconies, and a service offering or use concept to be developed for the first floor.

Figure: Structure of hotel reused for traditional housing; source: Wüest Partner

Senior living communities

The high demographic demand for age-appropriate living arrangements speaks in favor of converting former hotels into retirement communities. In Germany, the number of pensioners will increase by 4.1 million (23 %) by 2040, according to the ninth population projection. This user group is assumed to have a high willingness to pay rent, as the need for community offerings increases with age. However, due to the merging of rooms and the destruction of structures, even this type of use is associated with high conversion costs. A utilization concept—ideally an age-appropriate service offering—must be developed for the space on the first floor.

Figure: Structure of hotel reused for senior living communities; source: Wüest Partner

Conclusion:

Interesting housing options that could be considered for reusing hotels are currently emerging. However, all options re-quire markets, locations and properties to be reviewed individually.

Karsten Jungk

Managing Director and Partner, Wüest Partner

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