Is there a future for condominium hotels?

If you were fortunate enough to visit the Miami Beach area in the early 1980s (the hair and cars alone would have been worth it), you might have stayed in one of the first ever condominium hotels. Since then, the “condotel” or “aparthotel” has seen its ups and downs as a hospitality model. It exists in a kind of twilight zone, floating between hotel and residential living. Given the rise of the share economy, you might assume the days of the condo hotel are numbered.

In fact, it was only a few years ago that the editorial team at Forbes thought that condo hotels represented a poor investment, yet there are many who disagreed, especially in Australia where the condotel is more usually known as serviced apartments. Whether operated under a lease or Management Letting Rights, Australia has embraced this concept with open arms, although there is still some residual suspicion of this model after the excesses of the1980s, where the “white shoe brigade” took advantage of unsuspecting investors in Queensland. (Not to be confused with the US term for leading professional services firms).

Queensland, like South Florida still seems to be ground zero for “hotel-residential” projects, with new branded developments attracting legions of buyers from overseas. Many of these buyers want to make use of the units for themselves, yet also rent them out and turn a profit. Putting this hybrid model under the protection of a respected hotel brand offers a compelling alternative to buying private property and listing on AirBnb—especially as more cities tighten regulations around share economy rentals. Yet the hospitality landscape is still changing. With the rise of millennials and the explosion of viable share economy options, it will take some time for the dust to settle. Modern travelers are still discovering what they want. The industry is still discovering how to provide it.

Without a doubt, hotels have been forced to adapt to the share economy—but as hotels learn the rules of the game, offering more of what guests want today, the share economy is likewise being forced to adapt.

For example, AirBnb has triggered billions worth of private property investments. Many of these properties are looked after by professional management companies.Effectively, they’re more like condo hotels than private residences.

In addition, AirBnb is now advertising on network television. Why? The brand knows it cannot continue to succeed merely on “novelty” and “local flavor.” It needs a strong element of professionalism and brand trust. AirBnb want to come off as a brand you can rely on, yet they are still figuring out how to assure quality and consistency.

On the other side, you have big hotel brands reaching out to millennials and cozying up to the share model. Moxy by Marriott. Canopy by Hilton. Centric by Hyatt. The emphasis being local art and cuisine, off-beat design, smaller personal (and larger communal) spaces—and lower price points.

At the end of the day, though, they’re still hotels.

And what do guests like about hotels? They’re trustworthy and reliable. They’re professional, not amateur. Staying in a private residence, with the owners standing in as managers, will always be an awkward proposition for some—one which does not provide the professionalism and anonymity they’re looking for on the road.

A condo hotel can position itself as the best of both worlds. Here you have locality, privacy, a kitchen, local flavor—but you also have the word “hotel” going for you. It’s understood that the service aspect will be professional, and there will always be someone on-site who will answer your call.

What about price point? Condo hotels have traditionally come in higher than “ordinary” hotels. After all, you have all the amenities of a residential living experience, including a kitchen. But when you look at many of the properties doing business in the share economy, it’s immediately apparent that not all of them are “budget” offerings. Many are charging premium rates that rival or surpass those of big brand hotels.

But brands can still add value. In the current Australian context, there is a glut of apartments in the major cities and many owners will naturally consider the sharing economy to offer better value than a straight twelve-month residential lease. Of even more value to the owners though would be a guaranteed five-year lease! Whilst some in the industry continue to whinge about the sharing economy, these extra apartments in fact offer a great opportunity to expand inventory without the capital cost. They provide an immediate increase in room stock in sought after locations and, assuming there are no building codes issues, offer the best of all worlds.

Where will condominium hotels ultimately end up? It’s difficult to say. But they do offer opportunities to operators to reposition themselves as a fresh, happy medium between staying in a hotel room and pulling the “local flavour” slot machine.

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