The North America regional overview during this week's Hotel Data Conference: Global Edition, which was put on by STR, started by examining the overall economic state of the economy and the industry before diving deep into reasons for optimism as hotels prepare for recovery.
Tourism Economics President Adam Sacks started the overview by focusing on growing traveler optimism. While only about 55 percent of travelers in the U.S. say that they feel safe traveling outside their community, “that this number is, indeed, rising,” he said. The improving employment situation, with half the jobs lost last spring back again, is another reason for hope.
Low interest rates have brought mortgage rates to “near historic lows,” Sacks continued, which is fueling a boom in the housing and construction markets. “It of course also lowers the cost of debt for households, increasing disposable income for things like travel [and decreasing] the cost of capital for businesses … A low interest rate environment is wind in the sails of the U.S. economy,” he said.
Another key driver is the sheer scale of fiscal stimulus in response to this crisis, with nearly 25 percent of the gross domestic product having been passed through fiscal stimulus. In comparison, stimulus passed during the global financial crisis of 2008 and 2009 topped off at less than 15 percent of the GDP. “There really is no modern historic precedent for this level of fiscal stimulus, and it certainly is going to be a catalyst for economic activity,” Sacks said.
Hotel Performance Overview
Vail Ross, SVP of global business development & marketing at STR, examined demand trends from 2020 and weekly and daily statistics the industry has seen so far in 2021 as it relates to demand in North America.
“Demand growth has been a struggle across all of the regions,” she said, noting that closed borders between the U.S. and Canada have stymied travel as much as the drop in group travel has. In the U.S., demand was already starting to slow down “slightly” before the pandemic, Ross noted, but demand leveled out in the summer months of 2020 before declining again in the winter. Demand for Mexico has come back since that border remains open, but it is still down almost 57 percent for the region. Shifting travel restrictions for the Caribbean, meanwhile, have led to demand uncertainties. “We can see this impacting the average daily rate as well in these areas,” Ross noted.
The loss of group demand has forced a number of upscale business-focused hotels to close, she added, and while there is no guaranteed return date for group demand, Ross said her team is starting to hear more about group business bookings from clients. Midscale and select-service hotels are experiencing some of the best demand, and average daily rate for major metro market hotels is approaching $100.
Looking at profit margins year to date to 2020 compared to 2019, gross operating profit margins across the whole region are around 30 to 40 percent, with Canada realizing the lowest profit margin in North America at 7.6 percent—down almost 29 percent from where it was in 2019.
In examining performance data for the year, Ali Hoyt, senior director of consulting and analytics at STR, found five bright spots among all the gloom.
The first was the way hotels in certain markets were able to hold steady throughout the downturn, with nearly half of hotels in interstate and small metro locations just about 70 percent or greater compared to their 2019 revenue per available room performance. “Nearly 20 percent of properties increased ADR or occupancy in 2020, and that's something to be proud of,” Hoyt said.
The second bright spot is the number of top-performing submarkets, with the Louisiana submarket achieving 102 percent of its 2019 performance in 2020—but that could be credited to the impact of Hurricane Laura, so the team looked to see what submarkets performed best without a natural disaster. In Michigan, the Upper Peninsula submarket performed at 90 percent of its 2019 revenue per available room performance in 2020. “When we started to look at Michigan, and the surrounding area, what stood out to us was Pictured Rocks National Lakeshore,” Hoyt said. The national park reached a new record for visitation last year at 1.2 million visitors, a 40 percent increase over 2019.
The third was leisure weekend demand, which made Yellowstone National Park the second-busiest national park in 2020—a title normally held by the Grand Canyon National Park, but park closures and travel restrictions lowered occupancy at that landmark. Yellowstone did face a slow start to the season, Hoyt acknowledged, but weekend occupancy from July through September was above 70 percent. “Not quite at the 2019 levels, but those are very busy times with everything considered over the past year,” she said.
The fourth bright spot is luxury rates. While many luxury hotels were forced to close due to a significant drop in group business, some properties have been able to hold on to their rate with transient travelers, Hoyt said. Luxury properties in Scottsdale, Ariz., that were able to remain open throughout the pandemic were able to increase rate 11.4 percent in 2020. With transient business accounting for 70 percent of the demand over the summer, the hotels increased their rates nearly 20 percent over those few months.
The fifth and final bright spot is the pipeline. The number of rooms under construction traditionally declines during economic downturns, and while the region is seeing an increase in deferred and abandoned projects, Hoyt argued that this could help hotels in markets with limited supply. Hoyt examined how markets fared during the last recession and how long it took to reach peak recovery, as well as the five-year supply compound annual growth rate during that same period. “Those markets that recovered in less than two years had less supply come online during that period than hotels that took five-plus years to recover,” she said. “This is only one factor in the overall recovery, but we think this could be a very positive side.”
Read the second part of Hotel Management's coverage of the North America Regional Overview of the Hotel Data Conference on Monday.