Low Development Costs, High ADRs and Incredible Valuations
Written by: Jay Bhakta
Glamping has taken the hospitality industry by storm over the last few years with developments occurring overnight. These remote-style stays became especially popular over the course of the Covid pandemic, as they offered the distanced retreats and vacation getaways that many craved after lockdowns. Due to the lack of physical structures required, development is rapid and far less costly. However, with the unique service proposition provided, glamping properties are able to charge high ADRs. And, as these properties are valued based on the income approach, their valuations are derived from their cash flow — resulting in incredible returns.
With varying startup costs through different business models, these high returns can be further extended. By making decisions such as buying or leasing land, startup costs can be further mitigated, allowing for a low barrier of entry for new competition to join. With the growth in popularity of online travel agencies, new and existing companies are able to compete in the marketplace without the need for previous brand presence or awareness, further lowering the hurdles of entry. Because of these factors, glamping properties are quickly profitable and scalable.
Innovative hoteliers within the industry are beginning to transform traditional hospitality by better understanding the relationship between investment costs and ADR. Traditional hospitality used to state that investment costs would correlate with the ADR you were able to charge. However, with the newer generation of travelers willing to spend more on experiences rather than materialism, development has been flipped on its head and is rapidly changing, allowing for many new creative opportunities and solutions.
In addition, to the financial incentives provided from lower investment costs and higher returns, the unique selling proposition of glamping includes sustainability, eco-friendliness and an escape from the hustle and bustle of everyday life, while still providing the luxury of comfort. These are just a few of the many reasons people are choosing glamping as their next travel experience rather than a trip overseas. It is important to note that it is not only campers who are choosing glamping, but also travelers who are typically interested in taking vacations in other countries and staying in hotels.
Glamping provides tech and business savvy property managers with many possibilities for creative solutions to improve upon the blank slate due to the lack of proprietary burdens of the traditional hospitality business. Glamping is truly a creative outlet and unencumbered in its naivety. This space is growing rapidly and will see many further innovations that will continue to shape the future. However, it is currently in need of entrepreneurs who will provide centralization and standards to further grow the market, as the current state of decentralization can provide a shattered and messy booking experience.
Stay-tuned to the fine, glamping options that develop over the next several years; or consider an entrée yourself and make it your next business endeavor.
This blog post tied for First Place in the Fall 2022 HFTP/MS Global Hospitality Business Graduate Student Blog Competition presented by the HFTP Foundation. Participants are students participating in the Master of Science in Global Hospitality Business, a partnership between the Conrad N. Hilton College of Global Hospitality Leadership at the University of Houston, the School of Hotel and Tourism Management at Hong Kong Polytechnic University and EHL. The blog posts that received the top scores will be published on HFTP Connect through March 2023. Learn more at HFTP News.
Jay Bhakta is a recent graduate with a Master’s in Global Hospitality Business from EHL Business School with an interest in hospitality asset management, development and operations.
Resources:
BLLA. (2022, August 3). How boutique brands are leveraging strategies to revolutionize the hospitality industry. Hospitality Net. Retrieved October 29, 2022, from: https://www.hospitalitynet.org/news/4111821.html