Is wellness worth it?

Value-add real estate strategies have grown in popularity over the last few years with investors chasing higher returns and one of the ways to do this is by installing or upgrading wellness facilities, particularly with reference to hotels.

Quantifying how big a difference wellness makes it difficult but RLA Global has attempted to address the issue and recently produced the third edition of its annual wellness real estate report and some of the key figures make interesting and conflicting reading.

Hotels with wellness revenues exceeding $1 million generated 126% more in TRevPAR in 2021 than those with wellness revenues of less than $1 million.

"After a year of pandemic and extended hotel closures, 2021 was about recovery and hotel performances show a clearly positive trend in 2021 compared to 2020. When looking solely from a revenue perspective, hotels with significant wellness offerings seem to have achieved better results than properties with minor or no wellness,” Roger Allen, Group CEO, RLA Global, said.

But the report digs a deeper beyond the top line numbers, and the findings appear to show some of the risks with adding and running wellness facilities in the current climate.

Properties with minor wellness operations outperformed major wellness hotels in average monthly occupancy levels throughout 2021 and hotels without wellness had 6% wider gross operating profit margin on average.

What’s behind these numbers? Well, some kind of wellness offering appears  to be a decent revenue driver but it comes at a cost in terms of payroll and investment, something that is important to consider especially in the current climate.

"High levels of global inflation, combined with supply chain issues in hotel supplies and labour and compounded by energy cost increases have replaced much of the savings hotels had found during the last two years. These areas largely impact the wellness sector more than most as generally they carry a larger fixed cost base and labour force and higher levels of energy consumption. A key consideration for the coming years,” Michael Grove, chief operating officer, Hotstats, which participated in the report, said.

This is definitely something that hotel investors need to be aware of when considering repositioning or even just improving a property.

Analysts at McKinsey believe the global wellness market is worth more than $1.5 trillion and has an annual growth rate of 5 to 10 percent. With such a lucrative and growing market it’s easy to see why money is flowing into the sector, which will likely mean more competition in the coming years.

The study’s authors argue that this could mean “few winners and potentially many losers as the competitive landscape heats up”.

Wellness expands

The growth of wellness isn’t just confined to hotels. You can see its growing influence in F&B offerings and retail as well. The global Covid-19 pandemic has made us all much more a ware of our health and wellbeing.

Given this growth, it seems likely that we’ll see wellness mentioned more and more in hotel-adjacent real estate spaces.

RLA Global points out the potential in branded residences a subsector more hotel companies are getting involved in.

“The extension of the Nikki Beach brand into a more permanent environment like residences or extended stay opportunities was almost directly driven by client demand for a more permanent living environment,” Alexander Schneider, president, Nikki Beach Hotels and Resorts, said.

“We have seen many hospitality brands use the branded residence play solely for commercial expansion however we believe in making a difference by truly delivering a tailor-made brand experience within a new ecosystem.”

It’s even possible for hotels to leverage the growth of wellness in other ways.

Therme Group is the company behind a number of wellness resorts across Europe with a new venue set to open in Manchester next year. At its Badeparadies Schwarzwald resort in Germany it partners up with local hotels rather than offering its own accommodation.

Speaking at the recent Pere Europe Summit in London, Therme Group’s chief financial officer, Adrian Ion outlined the company's strategy

“What Therme Group is doing ­­­­­— and I think there are a number of other players out there — ­­ is providing the scalability of that wellbeing product, of that wellbeing solution. And by doing so making it affordable. So for us the key metrics are capex per square meter, revenue per square meter, but more importantly, the social impact also per visitor and per square meter,” he said.