Industry analysts predict 5-year recovery

Clockwise, from top left: Moderator Glenn Haussman, host of the No Vacancy podcast; Amanda Hite, president of STR; Jamie Lane, senior director economics/forecasting at CBRE; and Adam Sacks, president, Tourism Economics/Oxford Economics. Photo credit: Hotel Management

During the Best Western 2020 Virtual Convention, leaders from several analytics firms examined the major trends and challenges affecting the industry now and offered some predictions on what the next year could bring.

The panel was recorded just as STR reported weekly occupancy hit 50 percent for just the second time since the low point of the pandemic, and the analytics firm’s president Amanda Hite began the session with words of encouragement about the achievement.

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“It does send the signal that hopefully this leisure demand that we've seen—the only demand that we've really seen through the pandemic—will extend a little farther into fall than what we would typically see in a year,” said Hite. Still, she cautioned, demand has largely plateaued, with little growth week over week. “So that's a little concerning.” 

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Occupancy has hovered between 47 and 50 percent since late July, said Jamie Lane, senior director economics/forecasting at CBRE, with steady gains on the weekends and holding flat on weekdays. “On the weekday corporate traveler side, there's been some weakness,” he acknowledged, pointing specifically to rate more than occupancy as the challenge. “Yes, leisure is filled in, but if you look at comparables to 2019 where generally you see corporate rates begin to increase [due to] more corporate group demand, that hasn't been there.” In 2020, he said, rate has deteriorated “week after week” as the pandemic and downturn dragged on. 

Adam Sacks, president of Tourism Economics and Oxford Economics, noted clear disparity in different markets, with the top 25 urban markets struggling with the lack of business travel. “The exposure of a particular market to group and corporate demand, as well as to international travel, is really affecting the performance in these urban markets,” Sacks said. “In contrast, markets that are in resort, beach [and] mountain areas, they've done relatively well.” Hite agreed and said this trend was likely to continue through the end of the year. “

Leisure-focused booking options like online travel agency brand websites and property sites have seen business drop between 20 and 30 percent, Lane said. “Given that they were down over 80 percent in April, it's a huge recovery,” he said.. Group demand, however, is still down that 80 percent, and has not changed much since April. 

While hotels are struggling, Lane said alternative lodging options like Arbnb, Vrbo and other options have seen “much more demand,” particularly—again—in prime leisure markets. “So there's much more competition for [that], and it maybe puts a little bit more pressure on hotels than otherwise, given that people are still worried about the virus, still wanting to have a lodging that kind of allows them to social distance, and that's concerning heading into the winter season.” 

Problems and Problem-Solving

Sacks predicted that, as of mid-October, leisure demand would hold steady for a while. “If there were no continued sustained leisure travel, we would have seen more deterioration in performance over the last six weeks or so,” he said. Another notable opportunity is capturing domestic travel rather than trying to attract international business—even international business that would normally come in cars, such as from Canada. “While both the U.S. and Canada are suffering from the loss of inbound travel, both countries actually send more travelers abroad each year—in a normal year—then they receive,” he said. “So if you can imagine a world in which we, as an industry, convert those would-be outbound international trips into domestic trips, both the U.S. and Canada could actually be up on a net basis, even while losing international inbound travel.” 

Before the end of the year, STR does not expect to see much change in the numbers. “The challenges for leisure travel are markets that depend on airlift, and their travelers [getting] there via air is going to be difficult because there is just not the same amount of airlift available,” she noted. “So those drive-to destinations really have the opportunity to capture some more demand than what they normally would, because people are more willing to get in the car and drive. … It's really the middle of 2021 where we start to see hopefully some more significant demand come back.” 

As for business travel, Lane noticed some strong “risk aversion” in the corporate sector, with companies remaining unwilling to send employees on the road without an available vaccine or other treatment for the virus. That delay is incorporated into CBRE’s forecast, which expects 30 to 40 percent revenue per available room recovery next year, but that only puts the industry at roughly 70 percent of previous achieved RevPAR levels. Some markets will be down between 10  and 15 percent from 2019’s levels, while major global gateway cities will be down by more than 50 percent of 2019’s levels in 2021—“and beyond,” he added. “But once we get that vaccine, which we do expect mid-next year, they'll all be able to begin that recovery.” CBRE expects leisure markets that are already on the mend could completely recover by the end of 2021 or early 2022. “And then other markets like New York, San Francisco, Chicago, Boston, we expect it to be sometime longer.” Full RevPAR recovery for these urban, business-centered hubs might not arrive until sometime between 2025 to 2027.

Hite agreed, predicting that, nationwide, U.S. hotels will close out 2020 at around 52 percent occupancy—“which is a little scary to think about,” she acknowledged, but added that STR anticipates reaching 80 percent of 2019’s demand levels by the end of 2021. “So that's a really positive number,” she said. “People will get out there and start traveling. We just need to get to that point where we do have a vaccine or therapeutics. We've got companies who are [committing] money to travel and feel confident putting their employees back out on the road. And we think that the back half of next year is when we’ll start to see that.” 

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