Slow Climb Ahead
With the short-lived summer spike in travel a thing of the past, the lodging industry is faced with some grim realities in terms of performance for 2020 and leading research firms say they don’t expect much improvement anytime soon.
The upper-end of the market has been hit harder than lower-level properties, new construction projects have been tapering off since April, and rates may not fully recover for several years. Those were the takeaways from last week’s Southern Lodging Summit Industry Data Panel, which included Jan Freitag, SVP, STR, and Jamie Lane, senior director, CBRE Hotel Research.
STR’s most recent overall U.S. hotel forecast for 2020 is for occupancy of 39.8 percent, while ADR and RevPAR are expected to come in at $103.71 and $41.31, respectively. In comparison, in 2019 occupancy reached 66.1 percent, and ADR and RevPAR came in $131.13 and $86.64, respectively. Looking ahead to 2021, STR has occupancy at 52 percent with ADR coming in at $109.56 and RevPAR leveling off at $56.95.
Freitag put the latter number in perspective to demonstrate the impact of the Coronavirus pandemic. “Just for shock value the RevPAR for 2021 is actually the same value that we saw in 2010. So in two years we’ve wiped out a decade of RevPAR growth,” he said.
Freitag further noted, “we believe room demand is coming back by 2023. The question is just when are revenues and RevPARs due back and we think that’s actually 2025.”
Lane, meanwhile, offered some charts and talked about the industry in terms of “various shades of bad” as he described what he sees in terms of a recovery. “Certain aspects of the economy are seeing strong recovery, or V-shaped, but when talking about the lodging industry I bring that down to a lower-case k,” he noted.
Freitag pointed out that the industry saw RevPAR decline some 80 percent in April, which he described as “unprecedented territory” and the sharpest RevPAR decline ever recorded. While he did acknowledge that things “have gotten consecutively better over the next few months” through August with 10-point improvements in RevPAR declines, plenty of challenges remain going forward.
“The big question is now what happens after Labor Day? We have leisure travelers that are probably going to stay home more, there is no group demand and there’s very little corporate transient demand. What does that mean for the rest of the year?”
While Lane generally agreed, he did cite some encouraging signs in weekly data comparing weekdays to weekends. “The positivity I see is that weekend demand and occupancy is staying at relatively high levels” after having peaked in July and August.
“It points to generally people are continuing to take leisure trips during the pandemic. And working from home and remote learning has led to that added flexibility,” he said.
In terms of construction, Freitag noted the pipeline peaked in April with some 220,000 rooms in construction. As of August, the number of rooms in construction was 217,000, still 5 percent more than 2019 levels.
Freitag, however, drew some historical comparisons to the economic downturn of 2008 when it comes to construction starts.
“It turns out the pipeline peaks have a very close relationship to recessions. It happened exactly that way in December of 2007 and after that things started falling apart,” he said, noting of the rooms currently in construction “that number has and will continue to fall.”
In fact, the number of rooms in the planning stages as of August were 189,000 compared to 216,000 in 2019, a decline of 12 percent. According to Freitag, “projects in construction they will open and the projects in final planning they will not make it to the under-construction phase.”
He further elaborated on the impact of the downturn on new builds. “Projects that moved from final planning and planning to either deferred or abandoned has spiked and we fully expect that we will see a lot more abandoned and deferred projects,” he said.
Meanwhile, both executives agreed that the upper-end of the lodging industry has been hit particularly hard during the last several months.
Lane noted, for example, that the economy segment is seeing “a relatively strong recovery” with roughly 20 percent RevPAR declines in comparison to upper-upscale hotels, which are seeing declines of about 75 percent.
“These are still very deep declines and they are really dependent on group, international and corporate demand coming back,” he said.
Freitag reinforced the point. “It turns out it’s a tale of two cities as some segments got hit much harder than others,” he said.
Freitag noted that August RevPAR levels for economy, midscale and upper-midscale hotels were “not as affected” declining only around 27 percent compared to the 65 percent drop for upscale, upper-upscale and luxury hotels during the same period.
Freitag stressed the latter group is more dependent on corporate business. “Because there are no groups, [these segments] have gotten disproportiately hurt,” he said.
Freitag further demonstrated the struggles of group business versus transient noting that group RevPAR has declined 94 percent and “hasn’t really moved much over the last 5 months or so.”
Freitag did point out that in August U.S. group business booked over a million room nights for the first time since the pandemic. However, he noted there is still a long ways to go.
“There are some signs of life on the transient side, but without continued group recovery the U.S. hotel industry, especially the upper end of market, is going to continue to be in a world of hurt,” he concluded.