Second Half To Drive Recovery

Lodging industry fundamentals are expected to get incrementally better over the next several years with a bounce back beginning in earnest in the second half of this year, according to HVS.

During a recent webinar from HVS & The Lodging Conference 2021 entitled “A View From The Top” Hospitality Insights & Strategies, Rod Clough, president, Americas, HVS, shared the company’s updated outlook for the next few years.

He pointed out that for 2021 the company is forecasting an 11.5 percent increase in occupancy to 53.5 percent. “The majority of that increase is going to come in the late summer and fall months. As we progress through the first few months of the year, things will stay pretty well on the low side. That’s to be expected, but we’ll really see an increase happen in the latter half of the year,” he said.

Clough noted that spike will be followed by a 7.5 percent increase in 2022 with occupancy climbing to roughly 61 percent. Those numbers are expected to continue to rise to 65 percent in 2023 and 65.5 percent in 2024.

However, gaining significant traction on rate figures to take a little bit longer, according to Clough. As an example, he noted that average rate isn’t expected to exceed the 2019 level of $131 until 2024.

“We see things lagging a bit, taking a little bit more time to have average rate come back,” he said. Clough noted that average rate in 2021 is expected to reach $109.25, an increase of some 6 dollars from 2020. Those numbers are projected to reach $119.00 in 2022; $127.25 in 2023; and $133.75 in 2024.

Clough noted that drop-off in group business is the primary reason for the lag. “Transient will come back the fastest and we expect that full force of transient business back in place by 2023,” he said.

The RevPAR projections from HVS further reinforce the point. The company is forecasting a RevPAR to reach $58.45, a 35 percent increase over 2020. RevPAR is expected to reach $72.59, $82.71 and $87.61 in 2022, 2023 and 2024, respectively.

Meanwhile, when broken down by chain scales, it seems luxury has been the least impacted from a rate standpoint thus far. Luxury RevPAR for 2020 only dropped 8.9 percent. In comparison, upscale RevPAR dropped 21 percent during the same period.

“Luxury ADR is not declining as much as you think it would. If you look at the daily trends provided by STR, luxury is holding rate relative to where things were last year. There’s a big occupancy decline obviously for luxury, but once that occupancy comes back because that rate hasn’t been devastated that might be an upside point to look at for luxury recovery,” he said.

Separately, the flood of transactions that many in the industry expected to see as a result of some of the financial distress hasn’t happened. Clough assessed the current market conditions.

“Not surprisingly we’re not seeing a lot of activity. The PPP [payroll protection plan] funding and relaxed forbearance rules are really delaying foreclosures…Once this market starts returning, maybe in the summer or the fall, it may negate the need for foreclosures at all. That’s something that we’re looking at and monitoring,” he said.

Clough further added sellers have to be willing to take a roughly 20 to 25 percent pay cut versus 2019 valuations , which represents another obstacle to deals getting done, not to mention liquidity.

“Can a buyer obtain financing? Also, if they are able to retain financing the lender really wants to see that that hotel has turned the corner or it’s a market location that hasn’t been as deeply affected by the pandemic,” he noted.