Las Casas Filipinas de Acuzar is a good example of how heritage structures may be refurbished for the hospitality sector
Five years since the world needed to shut down to keep a pandemic at bay, the global hospitality sector has bounced back and is indicating that it is better than ever.
Indeed, over the past three years since global travel restrictions were relaxed, accommodations providers throughout the world have been working double-time to draw travellers back in, offering amenities that range from traditional comforts to innovative solutions geared towards keeping both guests and the environment healthy.
In which case, many potential investors are wondering if now would be a good time to consider putting their money in the hospitality sector.
We have a quick answer to that: yes, it is; and today’s feature will show you just why you ought to consider hospitality investment in your portfolio.
First things first: what is hospitality investment?
Simply put, hospitality investment means putting capital into businesses or properties within the hospitality sector.
This is a means to an end, namely generating financial returns from room, villa, or bedspace rentals, and related areas such as food and beverage, spas and fitness centres, as well as the use of event spaces within a property.
Hospitality investments come in several forms, and the following are the most common:
- Direct ownership which could mean establishing the brand itself, buying a specific property, or building the business from the ground up. Direct ownership also means that the investor has a hand in actively managing the brand or the property, or is responsible for hiring personnel to manage the premises;
- Hotel development is related to direct ownership, but skews more towards putting one’s money into the act of design and construction of hospitality properties and spaces;
- Adaptive reuse and/or conversion is related to hotel development, but refers to investing in the conversion of existing properties such as vintage homes or buildings with historical value into hotels or other hospitality businesses. Las Casas Filipinas de Acuzar in the Philippines which saw the refurbishment of several heritage structures into hospitality spaces is a prime example of this;
- Real estate investment trusts (REITs) call for putting one’s money in trusts that own and manage income-generating hospitality properties, including hotels and hostels; and
- Stocks and funds involve publicly-traded shares in hospitality firms in the first, and collective investment pools related to several related assets in the latter.
Philippine firm Hospitality Innovators Inc has one of the most diverse portfolios in the industry, offering hotels, resorts, and serviced residences
The advantages of investing in the hospitality sector
As to why hospitality is a sector into which one should invest, The Private Office’s founder and principal Anjar Kusumadinata believes that there are 11 points to consider.
These are:
Hotels and related hospitality businesses offer steady cash flow
Consider this: a hotel or inn generates income via space rentals for rooms and events, food and beverage services, and wellness services. While revenues may fluctuate, keep in mind that they provide a higher return than, say, renting out your home on platforms like AirBnB. That said, the revenues coming in are continuous and a good bet for those seeking steady income;
Consider how property value can appreciate over time
The property value for hospitality structures stands to appreciate significantly throughout the years, and this is especially true for those located in prime destinations or city centres. As the areas around them grow thanks to a boost in tourism promotion, commercialisation, and overall area development, so too will their value. Likewise, renovations and upgrades are also instrumental in boosting the value of a given property.
Getting into hospitality investment can significantly diversify your investment portfolio
As Kusumadinato points out: “Investing in hotels offers a means of diversifying an investment portfolio. Real estate investments, in general, can balance out more volatile asset classes like stocks. Hotels, with their unique revenue models and market dynamics, provide further diversification within the real estate sector, helping to spread risk and stabilise returns.”
Investing in hospitality offers tax benefits
Kusumadinato also pointed out that hotel investments come with several tax advantages. Owners can take advantage of depreciation deductions, which can offset income and reduce taxable earnings. Indeed, many operational expenses, including maintenance, staffing, and marketing costs, can be written off, delivering additional tax relief.
They’re a natural barrier versus inflation
Think about it: room rates and service prices can be adjusted regularly, allowing hotel operators to pass on increased costs to customers. This ability to adjust pricing helps maintain profitability even as inflation rises, protecting the value of the investment.
Hospitality investment gives you more operational control
Investing in hotels often grants more operational control compared to other types of real estate investments. Owners can influence the efficiency of operations, customer service quality, and overall guest experience. Effective management can lead to higher occupancy rates, better reviews, and increased profitability.
Such investments allow you to leverage opportunities
Financing options for hotels can be advantageous, allowing investors to leverage their investment. By using borrowed funds, investors can purchase larger properties or multiple hotels, amplifying potential returns. This leveraging can significantly boost investment performance if managed prudently.
Signing with well-known hotel brands or firms boosts your credibility
Of late, we’ve seen a number of hotels tying up with companies like Accor, IHG, and Dusit, and there is a very good reason behind that. Signing up with a well-known hotel brand or franchise accords recognition, trust, and a loyal customer base. In turn, this could translate into higher occupancy rates. Major global names also provide marketing support, operational guidance, and training, enhancing the overall efficiency and profitability of the hotel.
Hospitality investments = multiple revenue streams
Hotels can generate income from a variety of sources beyond room rentals. Restaurants, bars, spas, conference rooms, and event hosting services all contribute to the revenue mix. This diversification of income streams can stabilize earnings and increase the overall profitability of the investment.
You play a role in boosting tourism which means tourism helps you grow your business
Hotels are among the key beneficiaries in countries that are amping up their tourism promotion efforts. An increasing number of tourists translates to higher occupancy rates and potentially higher room rates. Locations with strong tourism appeal can offer substantial growth potential, making them attractive investment targets.
Hospitality investments are resilient
Certain segments of the hotel industry, such as budget and mid-scale hotels, tend to be more resilient during economic downturns. As travelers look for more affordable accommodation options, these hotels can maintain steady occupancy rates even in challenging economic times.
