While hotels are busy caring for evacuees from hurricanes Harvey and Irma, hotel companies are busy considering the long-term impacts the storms will have on hospitality going forward. According to a report from Baird Equity Research, earnings for hospitality in Q3 2017 are expected to decline for a handful of hotel real estate investment trusts with connections to South Florida and the Caribbean due to hotel closures, but hotels that are able to remain open should see some benefit from increased occupancy levels despite slashing rates across the board.
Forecasting revenue per available room for Q3 has become more difficult because the level of damage sustained in southern Florida and and Texas still remains to be seen, but hotel supply has been able to remain online in Houston. This is at the very least positive when compared to Hurricane Katrina in 2005, which caused a nearly 30-percent reduction in hotel supply in New Orleans for the year following the event.
Leisure demand in South Florida is expected to take a hit for some time due to mandatory evacuation orders. While REIT-owned hotels in Key West are scheduled to reopen early the week of Sept. 18, Baird Equity Research’s report states that many hotels have already pushed back reopening dates and the status of Key West’s infrastructure remains unknown. One major concern for hotels is that companies are not able to recognize income from business interruption insurance until proceeds are received, which could take several quarters and may affect performance reports.
The report also forecasts a greater negative impact on larger, group-oriented hotels and resorts/urban properties charging higher rates. In the wake of this, other convention center markets may benefit in this vacuum, such as Austin, Chicago, Orlando and San Antonio. Lower-rated extended-stay properties in hurricane-affected areas are expected to benefit from the Federal Emergency Management Agency, insurance and construction business in the near future.
These estimations were supported by a report from STR, showing Orlando; Atlanta; Birmingham, Ala.; and Chattanooga, Tenn., experienced significant performance growth in the days following the storms. From Sept. 6-9, Miami saw a 37.7-percent drop in occupancy to 42 percent, as well as a RevPAR drop of 47 percent to $49.65. During the same period, Chattanooga’s occupancy rose 39.6 percent to 92 percent, and its RevPAR was boosted 82.2 percent to $111.64.
Other negative effects of the two hurricanes could result in higher construction costs nationwide, slowing supply growth as costs increase by double digits. Also, once the level of damage is better understood, investors may be prompted to introduce more geographic diversity into their portfolios. Key West and the Caribbean are in danger of being crossed off the list of desirable development or investment locations until news of the storm blows over.