Council Post: Opportunities Exist Amidst Covid Hardship For Local Hotels

Shan Bhagat is a commercial real estate entrepreneur and president & CEO of BKS Hotels, a full-service hospitality company.

The Covid economy has affected us all, especially due to the catastrophic toll it’s taken on small business owners and employees. But where there have been obstacles, there’s been opportunity. Covid has accelerated consumers’ passion for “buying local.” In tough times, people naturally look to their community for support. Where many see their local businesses struggling, they look for ways to support them.

Hotels are often overlooked in this equation. They aren’t seen as local businesses or even small businesses. In fact, most of the “big brand” hotels you see in your community are locally owned and operated. Industry research shows that in 2019, 80% of branded hotels were franchised operations. These hotels have a major impact on local economies. For example, U.S. hotels contribute $660 billion to the U.S. GDP and support over eight million jobs. In my home state of New Jersey, local hotels contribute $12 billion to the local economy and employ nearly 100,000 people.

Covid Puts Pressure On The Hotel Industry

The market forces stoked by Covid fears have been enough to devastate the industry. According to SCORE, the hotel and leisure industry is one of the industries hardest hit by Covid closures. 

The most obvious impact on local hotels is the serious drop in revenue. In October 2020, the hotel occupancy rate was just over 48%, a 30% percent decline when compared to the previous year.

The drop in occupancy drags more down than only revenue. Every small business owner knows that employees aren’t only employees. Employees feel like family. This is especially true in the hospitality industry, which is as much a lifestyle as a business. 

During those early weeks, employees took cancellation call after cancellation call. The teams at each property had put in so much work to arrange group blocks for upcoming events, and it all just vanished. The demoralization was palpable and difficult to see.

Employee morale takes a beating in other ways too. Like other local businesses, hotels have had to furlough or separate from some employees. This is always painful, especially when so many are long-time employees. The employees who remain feel the distance from the community with few guests on the property. Wedding celebrations are gone. They miss the regulars who visit each year for an annual event or competition. Hotel employees are built for welcoming people, and that simply isn’t happening on a large scale.

Increased property taxes is another Covid-related pressure on local hotels. Municipalities are struggling for revenue like everyone else. Sales and use taxes are down. As a result, many municipalities are considering increasing — or have increased – property taxes. Hotels are more than service businesses, they’re also real estate operations. Higher property taxes increase operating costs even as revenue is down.

Making The Most Of The Opportunities That Exist

It’s not a pretty picture. However, local hotel operators ‌have options. People do have ways to support the local hotels in their community.

Industry occupancy rates will remain tied to Covid restrictions and concerns. The vaccine may ease some of the pressure of low occupancy, but that’s uncertain. There’s no reason to wait for widespread vaccination before finding alternative ways to increase revenue.

One additional revenue stream is offering day rates for people who need a work-from-home alternative. Hotel rooms have fast, reliable WiFi and well-equipped desks. A day rental is a perfect solution for people who need an ad hoc, temporary workspace. Houses are getting a bit crowded. Kids are at home for school. Parents each need an office space. This is the type of solution that supports both the hotel and the needs of people in the community.

Local hotel owners can also lean into what makes being a family-owned, local business so amazing: getting to care about people as much as revenue. Many of the 20% of big brand hotels that aren’t locally owned are owned and operated by large, third-party management companies. These companies are tied to stricter budget constraints.  

One highly experienced manager was let go from the hotel management company he’d been working at for the last 17 years. As their revenue dropped, his salary grew as a percentage of operating income, which was too large for their metrics. I know this because I was able to hire him. Family-owned franchisees have more flexibility. With the great upheaval in employment across the industry, local hotels willing to invest in the best talent will find these opportunities.

Last, local hotel owners are a noticeable presence in the community. They participate in local organizations. They should continue to act in this spirit by joining with other local businesses to build that network of mutual support. Local communities don’t want to support local businesses as much as they want to support local people. It’s the responsibility of the small business hotel owner to make sure that when people see that big brand hotel name on the outside of the building, they know the local folks inside.

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