JLL: Economy Hotels Lead the Way in Housing Essential Workers

INTERNATIONAL REPORT—Economy and select-service hotels have emerged as leaders in the hotel sector, housing essential workers on the front lines of the coronavirus pandemic while taking steps to keep guests and employees safe, according to research from JLL’s Hotels & Hospitality Group.

First responders, such as healthcare workers, now constitute a significant portion of the demand in many hotel markets around the globe, said Geraldine Guichardo, global head of research, Hotels & Hospitality Group, JLL.

“Extended-stay hotels, particularly within the lower-priced segment, are seeing the most demand,” Guichardo said.

In the U.S., these hotel sectors saw occupancy rates in the 40-45% range for the week ending April 4, compared to 20% for the overall U.S., according to JLL Research.

Governments, in many cases, are working directly with hotel owners to house workers, and are turning to economy and select-service hotels—including those aimed at extended stays—above other hotel categories.

“Economy and select-service hotels are outperforming in the U.S. from an occupancy perspective due to medical-affiliated demand, including demand from the National Guard,” she said. “In areas across the globe, these hotels, often located in or near medical centers, provide much-needed private space for essential workers who do not want to risk exposing the people in their homes.”

Serving First Responders

Economy and select-service hotels are working directly with governments to service essential workers and those who need to quarantine.

In some U.S. states like New Jersey, and cities like Chicago and San Francisco, governments have secured hotel rooms for healthcare professionals, government workers and other first responders.

Hotel groups in the Philippines, India, Thailand, Sri Lanka and Jakarta are also working with governments to provide temporary housing options to essential workers.

Australia’s state of Victoria launched a Hotels for Heroes program where both clinical and non-medical staff working in healthcare facilities can stay for free to isolate.

Some demand is related to government-mandated quarantining, said Sashi Rajan, SVP, JLL Hotels and Hospitality Group’s strategic advisory and asset management, Asia, who is based in Singapore. Governments in the Asia-Pacific region have recently tightened quarantine measures for returning residents, requiring them to spend two weeks in a hotel, rather than at home. In Singapore, it has been reported that the government has booked more than 7,500 hotels rooms for this purpose. Australia has taken similar measures.

“With a drop in demand from international arrivals, hotel operators have to be open to considering any potential business,” Rajan said. “Every piece of business that offers to bring in cash flow and keep business running is a positive outcome under the current circumstances.”

Cutting Costs and Keeping People Safe

Select-service and economy hotels mainly draw investor interest from regional owner/operators.

The regional nature of U.S. hotels is especially advantageous during this time, said Al Calhoun, managing director, JLL. “The amount of money it takes to keep an economy hotel or a midscale hotel open is far less than what it takes to keep the lights on in a luxury hotel,” he said. “Owner/operators with multiple select-service or economy hotels in one market can evaluate which of their hotels to keep open, how to adjust their labor load and how to keep costs down. Many of these measures happen to be exactly what is needed for guest and employee safety.”

Closing restaurants or lounges and other common areas, reducing housekeeping visits to rooms where people are isolating, and reassigning employee tasks accordingly lower costs while keeping people safe. Task sharing could mean that a front desk clerk also does laundry at night, and food service options are limited but delivered directly outside guests’ doorways.

To prevent the spread of COVID-19, some operators take steps to separate guests by floors, keeping those on the front lines on one floor and those who have had potential known exposure separated on another, Calhoun said.

“Economy and select-service hotels are positioned to cope better than others since they are built more efficiently and often have a smaller room count, which gives operators tremendous flexibility,” he said.

A Resilient Sector

These advantages could be amplified during recovery, said Denny Meikleham, managing director, JLL. Select-service and economy hotels are positioned to recover first because of the commercial traveler, who needs them to work.

Until then, the focus is on filling as many rooms as they can safely. “This is a devastating thing that’s happened, but the silver lining is that these operators have found a way to keep some of their properties open to serve the public,” said Meikleham.