CBD Hotels Face Challenges as Guest Preferences Shift

Technology and changing demand patterns are reshaping the hotel industry, with potentially more serious consequences for hotels located within Central Business Districts than for those outside them.These shifts are occurring at a time when hotels are already being buffeted by alternative lodging options like short-term rentals, timeshares, vacation clubs, glamping, and other choices. Hotels are also losing revenue from phone calls and movie rentals, which at one time accounted for 3% of total hotel revenues, according to a new CBRE report on trends in the hotel industry, as guests turn to their cell phones and computers for these services.In addition, the report takes note of other forces at work to create challenges for hotels in CBDs — in particular, distributed technology like ride-share services and food delivery apps.“In the past, travelers were willing to pay a premium [on ADR, the average daily rate] to stay within walking distance of their ultimate destination. Travelers now are willing to stay just outside of what most would consider a walkable distance and spend a fraction of the CBD room-rate premium on transportation to their event.” According to CBRE, the ADR premium for CBD hotels compared to non-CBD was 62% in 2008. Currently, it is 42%.The fact that fewer non-CBD hotels add on charges for resort and destination fees gives them another advantage. The number of hotels adding these charges has tripled from 4.3% in 2015 to 12.5% now, as has the average fee which rose to $11 from $4.And fewer guests now dine in hotel restaurants, choosing either to eat nearby or order meals through food delivery apps. “Without careful planning in partnership with brands and hotel management, there are continued risks to shifting demand patterns and the diverting of revenue streams,” the report cautioned.It noted, however, that locals can be attracted to online app-based distribution platforms and loyalty programs to generate additional hotel revenue.“Given the need to find incremental revenues for additional profit growth and investment returns, we believe hotel operators and globally recognized brand families will ultimately turn to their own technology applications,” the report said. One way would be to enable the world’s 580 million users of hotels’ rapidly growing loyalty programs to work remotely by booking day passes for some hotel amenities like meeting spaces, lounges and lobbies.“All these changes suggest that hotels are moving from purely a location-driven demand strategy to a total experience or total value strategy for most guests,” the report predicted.