Adding wellness facilities adds more revenue, but comes with financial risks. Quantifying how big a difference wellness makes is difficult, but RLA Global has attempted to address the issue in its latest annual Wellness Real Estate Report. Some of the key figures make interesting and conflicting reading, says Ian Youngman.
Value-add real estate strategies have grown in popularity over the last few years with investors chasing higher returns and one of the ways to do this is by installing or upgrading wellness facilities, particularly within hotels.
The report finds that hotels with wellness revenues exceeding US$1 million generated 126% more in in 2021 than those with wellness revenues of less than US$1 million.
After a year of pandemic and extended hotel closures, 2021 was about recovery and hotel performances show a clearly positive trend in 2021 compared to 2020. When looking solely from a revenue perspective, hotels with significant wellness offerings have achieved better results than properties with minor or no wellness.
The report digs deeper beyond the top line numbers, and the findings show some of the risks of adding and running wellness facilities in the current climate.
Properties with minor wellness operations outperformed major wellness hotels in average monthly occupancy levels throughout 2021 and hotels without wellness had a 6% wider gross operating profit margin on average.
Some kind of wellness offering appears to be a reasonable revenue driver but it comes at a cost in terms of payroll and investment.
Elevated levels of global inflation, combined with supply chain issues in hotel supplies and labour and compounded by energy cost increases have replaced much of the savings hotels had found during the last two years. These areas largely impact the wellness sector more than most as generally they carry a larger fixed cost base and labour force and higher levels of energy consumption. This is something that hotel investors need to be aware of when considering repositioning or even just improving a property.
The global wellness market is lucrative and growing with money flowing into the sector, which will mean more competition. The report argues that there will be a few winners and potentially many losers as the competitive landscape heats up.
The growth of wellness isn’t just confined to hotels. It has a growing influence in food offerings and retail as well.
It is possible for hotels to leverage the growth of wellness in other ways. Therme Group is the company behind a number of wellness resorts across Europe, with a new venue set to open in Manchester next year. At its Badeparadies Schwarzwald resort in Germany, it partners up with local hotels rather than offering its own accommodation.