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Hospitality Industry: On Its Way to Recovery?
While the sector still has a long way to go — particularly in markets reliant on business travel — there is much to be optimistic about.
Photo by Alexander Kaunas from Unsplash.
Hotel Asset Investing Begins to Stabilize
At the start of the COVID-19 pandemic, the first commercial real estate casualty was the hospitality sector. Business and leisure travel plummeted overnight, with hotel demand dropping 57% in the early days, according to CBRE’s 2022 outlook for the sector. However, since then, the sector has seen a shift back to the pre-pandemic normal — even if hotel demand and occupancy are not yet as robust as they were in 2019.
Different Travelers, Different Impacts
One of the main indicators behind this recovery is who is traveling — and why. Leisure travel has largely rebounded: CoStar reported in December 2021 that leisure demand had already essentially returned to pre-pandemic levels. However, business and group travel still have a long way to go. The same CoStar report indicated that business and group travel were only between 60% and 80% recovered at the end of the year.
Because of the nature of the hospitality sector, this uneven recovery across travel type impacts different metros in very different ways. Coastal destinations, for example, have shown a rapid rebound. At the start of December last year, markets including Miami, Tampa, and Myrtle Beach appeared to meet or surpass 2019 tourism levels, keeping the hospitality industry alive and well.
New York City skyline. Photo by Kit Suman from Unsplash.
Gateway Pain
On the other hand, most major gateway markets — especially higher-cost areas relying on business travel — are still feeling significant pain. Take San Francisco and New York, for example. An April 2022 report from the American Hotel & Lodging Association and Kalibri Labs project hotel business travel revenue will end this year 68.8% and 55.3% below 2019 levels in these two markets, respectively. Washington, D.C., the Bay Area, Chicago, and Boston all face similar dynamics.
The report anticipates only three of the top 50 business travel destinations will end 2022 ahead of 2019. These markets include San Bernardino, Calif., Knoxville, Tenn., and Las Vegas. Las Vegas, kept afloat by leisure travel from late 2020, appears to have succeeded in drawing business travelers back — the AHLA report anticipates a gain of 17.7% by the end of the year compared to the 2019 total, an increase from $2.7 billion to $3.2 billion.
Positive Signs for the Future
Despite the sluggish recovery of business travel, this is certainly not a time of doom and gloom for the hotel commercial real estate. RevPAR, a critical measure of a hotel’s financial performance, has increased 4.0% from March 2019 to March 2022. And occupancy hit its highest point since July 2021 in March, according to an STR report.
While many larger markets will still rely on business travel’s recovery, leisure travel will continue to fill the void for some. Additionally, though domestic leisure travel has driven much of the recovery, international tourism to the U.S. is also beginning to pick up. As COVID restrictions fall into the rear view mirror, this could help bridge the deficit created by business travel policies that may yet take time to respond.
Related Questions
What are the current trends in the hospitality industry?
The hospitality industry is currently showing signs of recovery, with leisure travel having largely rebounded. However, business and group travel are still lagging behind, with CoStar reporting that they are only between 60% and 80% recovered at the end of 2021. Different metros are being impacted in different ways, with coastal destinations showing a rapid rebound while major gateway markets are still feeling significant pain. An April 2022 report from the American Hotel & Lodging Association and Kalibri Labs projects hotel business travel revenue will end this year 68.8% and 55.3% below 2019 levels in San Francisco and New York, respectively. Las Vegas appears to have succeeded in drawing business travelers back, with the AHLA report anticipating a gain of 17.7% by the end of the year compared to the 2019 total.
Sources:
- https://www.costar.com/article/507460491/hotel-industry-recovery-hinges-on-demand-from-business-travelers-groups
- https://www.costar.com/article/709114746/us-hospitality-industry-recovery-is-uneven-across-top-markets
- https://www.ahla.com/sites/default/files/Business%20Travel%20Top%2050%20Markets%20Data%20One%20Pager%20April%2022.pdf
What strategies are hospitality businesses using to recover from the pandemic?
Hospitality businesses are using a variety of strategies to recover from the pandemic. According to CoStar, leisure travel has largely rebounded, while business and group travel are only between 60% and 80% recovered. Coastal destinations have shown a rapid rebound, with markets such as Miami, Tampa, and Myrtle Beach meeting or surpassing 2019 tourism levels. Additionally, hospitality businesses are focusing on marketing and promotions to attract customers, as well as offering discounts and other incentives to encourage travel. Finally, many businesses are investing in technology to improve customer experience and safety.
Sources:
What are the most important factors for hospitality businesses to consider when reopening?
The most important factors for hospitality businesses to consider when reopening are safety protocols, occupancy levels, and marketing strategies.
Safety protocols are essential for hospitality businesses to consider when reopening. According to Hotel Management, hotel operators should consider implementing contactless check-in, contact tracing, and other safety protocols to ensure the safety of their guests and staff.
Occupancy levels are also important for hospitality businesses to consider when reopening. According to CoStar, leisure demand had already essentially returned to pre-pandemic levels, but business and group travel were only between 60% and 80% recovered at the end of 2021.
Finally, marketing strategies are important for hospitality businesses to consider when reopening. According to Hotel Management, hotel operators should consider developing a marketing strategy to attract guests and build trust.
What are the best practices for hospitality businesses to ensure customer safety?
The best practices for hospitality businesses to ensure customer safety include:
- Implementing social distancing protocols, such as limiting the number of guests in the lobby or restaurant at one time.
- Requiring all staff and guests to wear face masks.
- Providing hand sanitizer stations throughout the property.
- Cleaning and disinfecting all surfaces regularly.
- Encouraging contactless payments.
- Providing contactless check-in and check-out options.
For more information, please refer to the American Hotel & Lodging Association's Hotel Safety Guidelines.
What are the long-term implications of the pandemic on the hospitality industry?
The long-term implications of the pandemic on the hospitality industry are still uncertain. While leisure travel has largely rebounded, business and group travel are still only between 60% and 80% recovered. This uneven recovery across travel type has impacted different metros in very different ways. Coastal destinations, for example, have shown a rapid rebound, while other markets are still lagging behind.
It is likely that the hospitality industry will continue to experience a slow recovery in the long-term, as business and group travel remain below pre-pandemic levels. To help support the industry, commercial real estate lenders are offering loan products with flexible terms, such as interest-only payments, extended amortization periods, and deferred payments.
Sources: