Rising Costs of Resort Development!!
Costs are up!! Everything costs more!! Land, materials, labor, permits etc, etc. Where does it end? We don’t know. But we do know that the current inflationary period is very similar to what we lived through in the mid to late 70s and what we have seen other countries go through in the past 10 years. We know from this that some resorts and resort developers will survive. Some will not. Below we have tried to outline some basic “Truths” about rising costs in resort development that may help with your planning.
#1 Acquisition costs of raw land in the top 25 resort destinations in North America have gone up over 500% since 2011. This will force wise developers to seek cheaper raw land in other, less popular areas and or to redevelop older, dated properties and or to partner with retail and other non-resort operators such as motels, restaurants, auto shops, malls etc., with easements to beach, river, trails etc, that are located in or near resort destinations for a re-development opportunity. Density will increase and volume operations will be one of the keys to survival.
#2 Development costs must be controlled. Shrinking the size of lots, rooms, pools, golf courses etc will be key. Large magnificent sales models are fine…for selling, but your average unit will need to be smaller, well designed and more efficient. According to DLB Industries, “shrinking development budgets by 10% often gets rid of the “fat” that grew during the boom times and needs to be cut anyway. This 10% cut is just exactly like a 10% increase in sales volume.” Instead of building just in time inventory or in phases, order all your materials that can be stored, in advance, for the entire project.
#3 Profit centers must be invented. Parking fees, laundry service, vending machines, paid towel service at the pool, 3 day fitness memberships for the fitness center are some small revenue streams that add up in a big way throughout the year. On site tour and sight seeing vendors, golf cart, telescope and bicycle rentals, gift shops, airport shuttle and car detailing are some moderate priced ideas that produce significant revenue streams. All of these can be sold at check in, at walk up booths, on line via the tv network and directly at the amenity by staff that is already there and being paid.
#4 Recurring revenue/memberships/clubs and related upgrades can produce large and often recurring revenue streams for almost any resort. Pre-selling a stay for the following year with a modest deposit before the guest checks out is easy and produces significant cash flow. Selling a Gold, Silver and Bronze membership at check in that allows the guest to use the above listed amenities at various time or levels is a big deal some people. A dining or bar membership works well also. A designated “club” area at the pool, bar, lift, etc where by guests get a little extra something and feel upgraded from the crowd is a big seller and produces extra cash flow with very low incremental costs.
#5 Cut costs!!! What a great idea. When times are good it is very easy to upgrade the lobby furniture or replace the mirrors behind the bar or change out the dated light fixtures. Sure…that’s natural. But when times get lean you would be surprised at how thriftily you can run a resort. Indoor and outdoor lights can be put on timers. The heated pool hours can be reduced. Thermostats on hot tubs can be regulated to only get “warm” instead of uncomfortably hot. Garbage pickup can be streamlined and only picked up once a week. Cloth napkins can be replaced with paper. Free newspapers can be eliminated. Outdoor showers, ski lockers, boat slips, tennis courts and observation decks can be closed 3 days a week. Security personnel can be reduced based weekdays vs weekends or double as bellmen or scannable wrist bands can be issued. Kitchen hours can be reduced. Deferred maintenance can be extended. Furniture upgrades/ replacements can be postponed.
Just get thrifty. Inflationary periods do allow for price increases so as to create a kind of pricing umbrella and it is easy to post explanations to your guests blaming on the government, inflation, the war in Ukraine etc.