During COVID-19, economy hotels lead the way in housing essential workers

Economy and select-service hotels have emerged as leaders in the hotel sector, housing essential workers on the frontlines of the coronavirus pandemic while taking steps to keep guests and employees safe.

First responders, such as healthcare workers, now constitute a significant portion of the demand in many hotel markets around the globe, says Geraldine Guichardo, Global Head of Research for JLL's Hotels & Hospitality Group.

"Extended-stay hotels, particularly within the lower-priced segment, are seeing the most demand," Guichardo says.

In the U.S., these hotel sectors saw occupancy rates in the 40 to 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," Guichardo says. "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, says Sashi Rajan, Senior Vice President of 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 says. "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 the U.S. hotels is especially advantageous during this time, says JLL Managing Director Al Calhoun, a U.S.-based hotel specialist who has transacted within the select-service hotel segment for 35 years.

"The amount of money it takes to keep an economy hotel or a mid-scale hotel open is far less than what it takes to keep the lights on in a luxury hotel," Calhoun says. "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 re-assigning 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 frontlines on one floor and those who have had potential known exposure separated on another, Calhoun says.

"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 says.

A resilient sector

These advantages could be amplified during recovery, says Denny Meikleham, Managing Director, JLL, a U.S.-based hotels specialist. 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," Meikleham says.

About JLL

For over 200 years, JLL (NYSE: JLL), a leading global commercial real estate and investment management company, has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. A Fortune 500^® company with annual revenue of $20.8 billion and operations in over 80 countries around the world, our more than 111,000 employees bring the power of a global platform combined with local expertise. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAY^SM. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

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