New forecasts predict the hotel industry has a path to recovery, but it won’t be quick and depends on a number of outside factors.
REPORT FROM THE U.S.—As the industry continues to navigate through the coronavirus pandemic, hoteliers want to know when the recovery will start and how fast it will be.
Recently revised forecasts for U.S. hotel performance indicate the recovery is near, but it’s going to take time before hoteliers see demand and rates return to normal. That recovery is dependent on several factors, any of which could slow it down.
Overall, demand is expected to bounce back in 2021 by 50%, which means an increase in occupancy and revenue-per-available-room growth of just shy of 50%, said Jan Freitag, SVP of lodging insights at STR, parent company of Hotel News Now. Those percentage changes can be a bit misleading, however, he said. If RevPAR declines by almost 60% in 2020 and then increases by almost 50% in 2021, that is not a V-shaped recovery because the base that 2021 uses is much lower, he said.
“That is specifically striking when we look at the (average daily rate) increases where for next year, 2021, we propose that rates are increasing only 1.7%,” he said. “As we’ve said in prior commentaries, the ADR rebound is most certainly not V-shaped, as we have seen in post-9/11 and 2009. It has never been in the prior recoveries, and we don’t think that 2021 or 2022 are any exceptions.”
Declines in 2020 are largely driven by the lack of corporate travel demand and the complete lack of group demand, Freitag said. It’s difficult to forecast how group demand returns since the industry is now in a “6-foot world post COVID-19” and the playbook for meetings, conventions and citywide events is being written now, he said.
CBRE’s latest forecast doesn’t differ much from its previous revisions, though it is a bit more pessimistic for 2020 and 2021, said Jamie Lane, senior managing economist of Econometric Advisors and CBRE Hotels Americas Research. It’s baseline forecast calls for a three-year recovery in nominal RevPAR for the U.S. industry with demand returning to pre-pandemic levels by mid-2022, he said. It takes about another year to get pricing back.
“That’s obviously predicated on a recovery in the overall economy, which today our baseline scenario calls for a two-year recovery in employment,” he said, adding that means by mid-2022 there’s a full pullback and rehiring.
Essentially, the industry is now at the depths of the recession, he said. Employment and incomes are a determinant of hotel demand in the forecast models. When people have jobs and are able to earn an income, they travel for business and for leisure, he said.
Pent-up demand, as travel restrictions ease, is expected in some leisure destinations this summer, but corporate group and inbound international travel are not expected to come back in any meaningful way until 2021, he said.
CBRE’s downside scenario pushes back the jobs recovery to five years, which would significantly delay the overall recovery for the hotel industry, Lane said. The likelihood of one scenario over the other is 60% the baseline recovery and 40% the downside, he said.
“That’s still a pretty high probability on the downside and much higher than we’ve seen in the past,” he said.
Scott Berman, U.S. hospitality & leisure practice leader at PwC, said the recovery is likely to vary by region and market.
“It’s not going to be a cohesive, country-wide industry relaunch,” he said.
States in the South and Southeast are ahead of other states in terms of reopening, so it’s staggered there, he said.
Social distancing protocols and limits on the number of people who can congregate are going to impair and restrict group business, he said. Consumer confidence is another factor, and the industry must take into consideration how willing a consumer is going to be to get back into a ballroom, he said.
Explaining the figures
For the first time, STR’s forecast included two supply figures, Freitag said. “Economic supply” does not take into consideration temporary or partial closings and assumes most hotels are open in 2020 and in 2021, he said. That allows STR to calculate economic occupancy and economic RevPAR because comparisons are easier without fluctuating supply, he said.
The ADR growth forecasted by STR for 2021 is 1.7%, a figure much lower than CBRE’s 8.9% and PwC’s 10.6%. Freitag said that is tied directly to the occupancy forecast of 52.1%, which means almost half of rooms available are empty, he said. Coupled with high unemployment, which will certainly be in the double digits, that will put pressure on leisure demand, he said. There is also still uncertainty around group demand, he said.
“We think these three factors will put pressure on ADR growth,” he said.
CBRE’s higher forecast for ADR growth in 2021 depends on a change in business mix, Lane said. Currently, the industry is seeing low occupancy levels in the upscale, upper-upscale and luxury segments while the economy segment has the highest occupancy levels, he said. More people staying in lower-priced hotels than in the higher-priced hotels is skewing the overall rate downward, he said.
“That’s going to reverse in 2021, where we’re going to see a stronger overall recovery in the upper-priced hotels,” he said.
PwC is a bit more optimistic about ADR growth in 2021, Berman said, noting it’s a balance that requires looking at all the chain scales. What’s encouraging is select-service hotels, which make up more than half of the supply in the U.S., have done better than expected, he said.
“Who would have thought that we would be pinching ourselves for occupancy over 30%?” he said.
Select-service and extended-stay hotels have performed decently compared others, and there are a lot more of them than luxury and upper-upscale hotels, he said.