Last week, the American Hotel & Lodging Association released a report noting that 21 of the top 25 U.S. hotel markets were still in a depression or recession as of May, with most urban hotels in the former category.
“What's happening is what we feared would happen, though the problem does seem to be improving,” said Chip Rogers, president and CEO of the AHLA. With business travel still well below 2019’s numbers, hotels cities like Washington, D.C., Chicago and New York are still facing low occupancy. “Those are cities that, during this time of year, typically have large conferences [and] conventions, their office complexes are full and people are traveling for business purposes,” he said. “And because that's not happening, those markets continue to struggle, particularly during the middle of the week.”
Notably, four markets were not in these two extreme markets—and Rogers said several of these markets may have similar stories behind their strength. “Phoenix, Miami and Tampa, [Fla.], are in that position [because] they are vacation destinations,” he said. Secondly, Arizona and Florida have largely remained open throughout the pandemic and continued to promote tourism. “When people started planning leisure travel back in March and April, they knew that they could travel to those two states and not worry about restaurants and activities being closed down,” he said. “Those states are feeling the benefit of people who planned travel a couple of months ago,”
Long-Term Effects
The long-term effects of these rapid shifts remain to be seen, but Rogers noted that while the industry waits for business travel to return, assets in business-focused markets may be available at a discount, including undeveloped land. “At the end, it may ultimately balance out,” he said. “There's no question that those resort markets are our hot commodities right now.”
Beyond the shift in how people travel for business, the improved ability to work remotely will change what people do when they do travel for business. “They can take advantage of many of the wonderful things that are happening in and around that city from a leisure standpoint as well,” Rogers said. The growth of “bleisure” travel will help the industry find a better balance, he predicted. “We're going to reach an equilibrium on some of these large urban city centers where, you know, land values will come down for developers to a point where they can get out and really do well. But it remains to be seen. We're just too early in the game to consider exactly what's going to happen.”
Small-Town Strength
While room revenue for urban hotels was down 52 percent in May compared to May 2019, hotels in small towns reported revenue per available room increases of 1 percent over the same time frame. “One of the problems that some of these large cities have had is that their elected officials—perhaps—have been slow to react, and perhaps in some places kept constraints on a little longer than science would have dictated,” Rogers said. “So when you're investing in a market like that, you always have to, of course, consider what the local leadership is doing, because policy does matter on your business.” Investors and developers will need to take those policies into consideration when calculating risks, he added.
This improvement matches the overall real estate market, Rogers said. “I heard that the hottest [residential] real estate market in the U.S. for price increase was in Idaho,” he said. “There's certainly a demand for people to move—not completely away from civilization, but not necessarily in the large urban city centers like they've done in the past.”