HVS’ latest "Outlook for the Hotel Industry" report examines the impact of current events on hotel performance and values, and looks ahead through 2026. And while many of the present numbers are hardly good, they do offer some hope of an upward trajectory.
“This is going to be a pandemic like nothing we've gone through previously, and certainly [has] had a bigger impact than any other recession period as well, at least initially,” said HVS Managing Director Tanya J. Pierson. To compile the report, the HVS team looked at historical data—based on travel research information from outside sources—and consulted with clients, talking with brokers and developers to determine their outlooks as well, particularly in terms of how businesses approached suspending operations. “And then [we looked] at past performance, through various downturns—after Sept. 11, after the Great Recession … And also did quite a bit of research in terms of prior pandemics in terms of how they affected hotels.”
By the Numbers
Recent STR data for the U.S. indicate that the industry has bottomed out and is starting to recover. In the second week of April, occupancy was down nearly 70 percent from the same time period in 2019, while average daily rate was down 45 percent and revenue per available room was down more than 80 percent. While late May's numbers were nowhere near those of the same week in 2019, they were decidedly better: occupancy was down 50.2 percent, ADR was down 39.7 percent and RevPAR was down 69.9 percent.
If the pandemic can be contained and the curve flattened, demand will recover as local governments lift travel restrictions, the report suggests. However, HVS anticipates that ADR will take longer to recover than in previous cycles given the magnitude of the rate declines. This reflects the expectation that rate will be a key marketing tool used to stimulate demand recovery. The availability of the shadow supply (Airbnb, Sonder, etc.), which was not a factor in previous cycles also will influence ADR recovery.
“We all were expecting there would be an impact but, nobody could have expected it would be to that degree, as quick as it was from February to March, in terms of the impact on the hotel market,” said Pierson, acknowledging some relief that the decline has started to soften.
As several studies have suggested, leisure travel seems to be recovering faster than business and group travel, especially as states and local governments reopen and lift restrictions. “Group will take a longer period of time to recover, Pierson cautioned. “So from the standpoint of occupancy uptick, I think it'll be quick to rebound,” but the “significant” recovery likely won’t begin until 2021, she added. “We'll still be down quite a bit in terms of occupancy throughout the rest of the year.”
As other reports have suggested, communication is key for keeping hospitality businesses afloat—both with guests and with staff. When guests understand exactly what a hotel is doing to maintain safety, she said, they will not only want to come back—they will be willing to pay for the experience. “Hopefully, hotels won't be dropping their rates so much because I do think it would become very challenging for them to make a profit with low average rates if they're bringing back many of their staff. I believe that many operators are in the process of putting together month-by-month budgets and what levels they can afford to operate at with the employees, the payroll costs that they'll be expected to have and so forth during those times.”
For the long-term, Pierson believes the use of technology in hotels may shift dramatically. Keyless entry may gain ground faster than it otherwise would have, housekeeping may be reduced and food-and-beverage options also may shift as guests seek minimal contact with staff and one another. “It is going to be a little bit of a road to get back to the market segmentation mix that many hotels have enjoyed historically, where it might not be a corporate-oriented hotel for the next six to nine months," Pierson said. "You might have to shift your focus on more leisure guests to offset some of that demand decline in the markets.”
In the next several weeks, HVS will be hosting several live presentations of this information by partners in its Consulting & Valuation Division with an opportunity for questions and answers.