Hotels Might Be a Good Investment in 2023, but Post-Pandemic Renovations Are Needed to Appease Unhappy Guests

Some predict that hotels will have a heightened desire for investors in 2023, but they’ve got some work to do to bring their properties back to life following the pandemic. 

Hotels have been a much sought-after investment property for several years because of their adaptability in a U.S. travel environment that, except for the period of COVID-19 restrictions, doesn’t seem to wane very long.

While the industry was wiped out by COVID restrictions, cleaning requirements and a general fear of people not wanting to be in a room where someone slept the night before, there have been some pretty positive economic changes for investors in 2022 and 2023, according to Paramount Capital Corp. Executive Managing Director Joseph J. Ori’s Top Ten CRE Predictions for 2023 published on GlobeSt.com.

Ori points to the fact that although many hotels were sold in 2021 at 60% on the prepandemic dollar, there are still a lot of discounts available in the sector with pent-up travel demand. He also highlighted one-night leases as the best protection against higher inflation.

The lack of updating, maintenance and renovation during the pandemic has caught up with properties that have found a return to travel demand. Jones Lang LaSalle Inc, a professional services firm specializing in real estate and investment management, says, “Guest satisfaction is taking a hit from outdated and inconsistent hotel conditions.” JLL points to the latest J.D. Power North America Hotel Guest Satisfaction Index, which reports overall guest satisfaction is down 8 points on a 1,000-point scale. Much of that dissatisfaction results from what guests perceive as the condition of their rooms. 

JJL says deferred maintenance and the need for upgrades to furniture, bathrooms, technology and systems and updated common areas are putting hotel owners in a bind. Full-scale renovations could last two to three years and are generally intrusive and disruptive, leading to short-term declines in revenue. 

This plight isn’t deterring commercial real estate investors like Pacifica Hotels. Pacifica CEO Matt Marquis told online real estate marketplace CoStar Group Inc that his company, which owns and operates boutique hotels along the Pacific Coast, is looking for new deals in the near term. 

Marquis said he has “an appetite” for urban markets such as Seattle, Portland and Denver that have been slower to recapture demand. 

"Some of these overheated markets, we're kind of staying away from," he added. "There's two schools of thought — some people that are doubling down on the hot markets thinking that's a trend that is going to continue to go. [But] we're looking at [an opportunistic investment approach] wherever we think there's really good value."

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