Goodwin Insights July 22, 2020

Envisioning the New Normal: Real Estate + Technology – Part 2: Hotels

This article is the second in a multi-part series examining the impact of the COVID-19 pandemic on select real estate sectors and the considerations around how technologies will shape future operations and accelerate means to re-entry of physical space.

Part II: Hotels 

Few industries felt the impact of COVID-19 as quickly and dramatically as the hospitality industry. Travel restrictions and stay-at-home orders brought travel to a near halt around the world in March, virtually eliminating demand for hotels. Many hotels closed down entirely, retaining only a skeleton staff to maintain the hotel buildings. Other hotels remained open, but generally experienced extremely low occupancy in the immediate aftermath of these orders.

As stay-at-home orders have lifted and businesses are starting to reopen, guests have started to return to hotels. To prepare for this return, hotel owners, operators and brand companies have been working feverishly to revamp hotel operations, with the goal of ensuring safety while maintaining the guest experience in a COVID environment that will likely last for several months (if not a year or more). Industry participants are also keeping a close eye on the costs of the new safety procedures and protocols in light of what is expected to be a long recovery to pre-COVID performance.

Reopening Hotels

The cornerstone of a hotel stay is the guest experience.  While the level of service varies by hotel type – with luxury hotels providing the most personalized experience – all hotels strive to make their guests feel welcome. The hotels that guests are returning to in these summer months will by necessity provide a different experience than the hotels of the past, in a number of important aspects.  The key challenge for the hotel industry is to provide a meaningful and personalized guest experience while convincing guests that they are safe.

  • The Guest Experience. Whereas guests in the past may have been greeted with a welcoming drink and a bell person whisking away luggage, guests today may be greeted with a temperature check and offered a face mask.Front desk staff may be situated behind plexiglass. To offer safe, distanced service while maintaining the personal connection to guests, many hotels are turning to technology. For example, hotels are offering more touchless and even viewless check-in options such as mobile key access, which allows guests to access their rooms through their mobile phone without the need to visit the front desk. Apps that enable guests to order room service and access all hotel services at the touch of a button are being developed. Some hotels are investing in robotic butlers to deliver a variety of items to guests such as food, beverages, toiletries and towels. To respond to the needs of guests wearing face coverings, some hotels are implementing training for hotel staff on reading guests’ expressions behind masks. A related article on this topic, “Embracing Technology in Hotels to Enhance the Guest Trust Equation in the COVID-19 Era” was recently authored by Goodwin’s Matt Pohlman and Tinyan Asemota.

  • Food and Beverage Operations. The need for social distancing will significantly reduce the capacity of most hotel restaurants and require table service (making the often-enjoyed breakfast buffet a thing of the past). Hotels will need to consider whether their existing food and beverage facilities can accommodate the number of guests arriving for meals during peak times, and may have to implement timed slots for meals to allow time to serve all guests. This reduced capacity and guests’ desire to distance may increase demand for in-room dining, reversing a trend over the past few years of eliminating or limiting those services.

  • Group Events. Business and social events hosted in hotels inevitably will look much different than they did at the beginning of 2020. The physical structure of events and attendee interaction requires redesign. Attendees that previously congregated in a single ballroom for a presentation may now be separated into multiple event spaces across a hotel to comply with social distancing guidelines. A hybrid conference model may be adopted for large events: instead of all audience members’ eyes being on a live stage, attendees sitting in numerous event spaces (and some even from the comforts of their own home) may be able to participate in group events by watching a live stream of the main event through a large screen or personal device. Technology will be an important tool in making these kinds of events feel cohesive despite the required physical distancing, and event planners will need to be creative in developing channels for personal connection and networking.

  • Safety Standards. Hotel operators and owners have been laboring to develop brand-enhanced cleaning and safety protocols. In May, the American Hotel and Lodging Association announced industry-wide coronavirus safety guidelines called “Safe Stay.” The guidelines are intended “to prepare America’s hotels to safely welcome back guests and employees as the economy reopens,” the association said in a statement. Several hotel brand companies are taking this a step further by working with well-known medical groups to develop branded health safety standards as a way to distinguish themselves and lure COVID-conscious guests. For example, Hyatt is implementing its “Global Care and Cleanliness Commitment” in collaboration with medical experts from the Cleveland Clinic, and Hilton worked with RB (the maker of Lysol) and the Mayo Clinic in developing its “Hilton Clean Stay” program. Enhanced cleaning protocols, which have now become standard, include modernizing air filtration systems, requiring rooms to remain unoccupied for at least 24 hours between guests departing and arriving and when the cleaning staff enter the room, mandating PPE for such hotel staff, encouraging hotel guests to wear face masks, using new disinfectant technologies/cleaning supplies, and rethinking the manner in which guests call and travel in elevator cars to access a room or hotel amenity. Hotels are removing some guest room amenities to minimize points of contact within a room, replacing them with hand sanitizer and wipes. The perception of hotel operations as being seen to be clean is now as important as the cleaning itself – cleaning is no longer something that must be done behind closed doors and hotel marketing is highlighting clean protocols.

  • Employee Regulations. Hotels will need to adhere to employee regulations around health and safety standards. These regulations are being promulgated by federal authorities (like OSHA in the United States and Health and Safety Executive in the UK), as well as state and local governments. For example, a new law in the state of New Jersey is designed to protect hotel workers’ safety and jobs amidst the impacts from COVID-19. The law requires hotels to clean guest rooms daily, maintain minimum staff levels at the front desk, offer increased levels of employee training related to cleaning guidelines and responding to questions and concerns guests may have related to health issues in light of the pandemic, and to provide employees with cleaning agents that have been certified by the Environmental Protection Agency as effective against the coronavirus. Labor unions representing hotel staff will likely push hotels to implement standards that exceed those required by law. For example, in March of this year, a labor union representing hotel and gaming workers in the states of New York and New Jersey came to an agreement with hotels on safety protocols that covers over 160 hotels. The agreement was expanded upon in June to require hotels to provide housekeeping staff with vacuums that have upgraded air filtration systems, create dedicated sanitation teams who are solely responsible for cleaning hard surfaces in lobbies and hallways at least hourly, and disinfect rooms daily regardless of whether a guest has checked out or not. The agreement additionally provides hotel staff an extra 20 paid days off in the event they become ill with the coronavirus.

Long-Term Forecast

As the broad scope of the pandemic has become clear, many industry experts predict it will be a matter of years before the hotel industry will fully recover and return to its pre-COVID performance levels. Given this long and likely bumpy road to recovery, some hotel owners have pivoted to different uses of their properties to ensure a stable source of revenue. Some hotels have provided accommodation for first responders and medical staff. Others have allowed short-term accommodation for the homeless. Some hotels in urban areas have converted rooms for use as temporary office space, offering a full complement of food and beverage and support services. Moreover, some hotels are filling a void in student housing by signing leases with colleges and universities for the next year, or transitioning to offer more long-term stays.

There are a number of challenges facing the hotel sector as it begins to reopen and take the first steps on the long road to full recovery. What is clear is that not all hotels are equal in this race and we will see different sectors recover at different rates. The expectation is that, in the initial phase, the majority of hotel guests will be domestic and have travelled only a short distance, likely by car. Longer-haul destinations are likely to follow later in the recovery period along with transient business travel, while big box conference hotels may be the last to recover (assuming they can survive long enough for demand to return). Hotels will need to re-assess their guest profiles and potentially revisit their usual distribution channels and seek other new and creative ways to attract guests, at least in the short term.

The rise of  technology-based alternative lodging platforms had already created a significant challenge to the hotel industry in the pre-COVID period. Today, venues that offer private, self-contained accommodation such as individual houses/apartments or holiday parks have another key selling point over the traditional hotel model. On the other hand, some guests may be more comfortable staying at a hotel with a robust set of safety standards developed in conjunction with leading medical institutions.

One thing is clear: resuming operations in the real estate industry does not mean a return to normality for the hotel sector. Your next hotel visit will likely look and feel very different to your last, and hotels face numerous challenges in persuading their guests to return. In addition, hotels will face increasing costs as they implement their safety protocols, and these additional costs together with lower-than-normal occupancy and limitations on use of space will create significant financial challenges for the industry.

Part III Preview: Healthcare

The next article in our Envisioning the New Normal series will discuss the healthcare industry, with a particular focus on the unique challenges facing lab spaces and nursing/care homes in the U.S. and UK, and the role that PropTech may play in mitigating health and safety concerns. A large number of lab spaces have remained open and have been a critical feature of the healthcare industry during the pandemic. However, onsite collaboration between workers (often in close proximity), and a high degree of multi-touch lab apparatus, have created obstacles in the context of compliance with government safe working and social distancing guidelines. Meanwhile, nursing/care home operators have come under immense scrutiny, with high mortality rates among vulnerable residents resulting in many operators having to review and overhaul protocols to protect workers and patients under their care.