Why are resorts a good investment opportunity?

Like all the asset classes of real estate, hospitality also witnessed significant changes post COVID-19. Preferences of travelers / tourists have changed significantly post March 2020. Gap between India’s and developed countries’ mindset on holidays is narrowing due to increased affordability, improving demography and flexibility at workplaces.Travel restrictions, flexibility to Work from Home (anywhere) is reshaping the hospitality industry. Travelling within India has been preferred more so due to restrictions and flexibility to plan the trip at the last minute.

Some of the trends in hospitality sector that are likely to be common during 2022 are – workcations and staycations. This trend is likely to continue making resorts a good investment opportunity in coming times.

• Workcations: A lot of people have capitalized on the opportunity to Work from Home and shifted their place from a typical urban dwelling to a picturesque rural location. Workcations are usually longer stays (7 – 10-day duration) which involves staying across various destinations of popular tourist circuits in India.
• Staycations: Staycations are typically shorter vacations – 1 – 2 nights stay in proximity to the cities (up to 100 KM from major city). Staycations are preferred by both individuals and corporates.

Rising demand for staycation and workcations is making resorts a good investment opportunity. Urban resorts as well as resorts in holiday locations are on an average clocking in occupancy levels in the range of 70% - 75% and ARR for luxury hotels / resorts ranging between INR 12,000 – 15,000 per night. Urban resorts are upscale, or luxury resorts located at 75 – 100 KM from tier I cities. Leisure travelers account for nearly 50% - 60% of the demand in urban resorts today as compared to a mere 25% - 30% pre COVID-19 levels; one of the key reasons being no or restricted international travel in the last two years.

Despite international travel resuming, we expect demand for resorts is likely to significantly increase making them a good investment opportunity. Some of the reasons why resorts will see growth in 1 – 3 year horizon include:

1. Weekend Get-away / Staycation

Uncertainty in planning a vacation and with different travel restrictions posed by various states, urban resorts gained prominence for a short break. Urban resorts offer all the facilities and desirable aspects of a vacation while offering the flexibility to book at the last minute and no hassle of booking flight or train tickets. A pet friendly resort, offering a separate swimming pool or activities for pets is a value add. Similarly, an urban resort designed around a theme – golf course, wellness, or a scenic spot of the city (hill, river, or a beach) or offering a unique experience are likely to be preferred over conventional urban resorts.

2. Need of collaborative spaces

With many companies allowing WFH, there is substantial demand for collaborative spaces – a change of environment for team meetings or board meetings or group discussions. As against conventional city hotels, urban resorts are preferred. Usually, these are day events requiring board rooms or meeting rooms supported by Food and Beverages (F&B).

3. Corporate Outings

As compared to the offshore locations or tourist locations within India, urban locations in proximity to the cities are preferred for corporate events and outings. The pent-up demand for corporate outings, conferences and training programs are resulting in to 1 or 2 nights stay at city’s urban resorts.

4. Destination Weddings

Presence for resorts for destination weddings has seen a surge as compared to traditional wedding venues. Within cities, urban resorts are preferred over conventional business hotels for destination weddings. Usually, the group size here varies between 150 – 250 people; it includes a stay-over up to 2 nights and involves elaborate F&B requirements and usage of different spaces for different events.

5. Workcation

A lot of companies are evaluating an option of offering hybrid option – work from office limited to 2 or 3 days a week. Vacations are no longer likely to be confined to weekends or school holidays. Flexible working culture will increase the demand for resorts and preferences for lesser traveled locations in proximity to tier I and II cities of India. Holiday locations around Bengaluru, Chennai, Delhi NCR, Hyderabad, Mumbai, and Pune (in addition to Goa) are likely to witness increased traction in coming 1 – 3 years.

Development of resorts is likely to witness increase around tier I, II and gateway locations and the changing needs of the target audience are likely to push the developers / property owners evaluate newer product types. The hospitality spaces are likely to extend their offerings for kids, pets, or even senior citizens. Developers are likely to evaluate sale and lease back options in tourist locations or timeshare memberships that is specific to certain geographies. Key tourist locations within 200 – 300 KM from major cities are likely to see development of managed second homes or vacation homes. A lot of real estate developers are evaluating an option of second home targeting both HNI / UHNIs as well as NRIs coupled with a hospitality project.

Meraqi’s team conducts detailed technical and economic feasibility report to assess the viability of a hospitality development. We also assist in preparing a business plan for various models of hospitality and assist property owners to partner with hotel operators.