Prior to the Covid pandemic, hotel occupancy rates were hitting record highs and average daily rates (ADRs) were rising. Now, with the possible exception of restaurants and retail shops, there is no major type of real estate that has been squeezed harder.
What are the top executives in the real estate industry thinking about the next 12 months? A survey of C-suite and other top real estate executives is included in a new report by RCLCO, which I coauthored. Respondents believe that the hospitality sector is approaching or at the bottom, with luxury and resort hotels the most commonly believed to be in “full decline” or at “bottom.”
Respondents to the survey said that the hotel industry is currently in “full downturn” or at the “bottom.” The business/luxury hotels and the resorts are the hotel types that are considered to be most clearly at or near the bottom. Participants consider extended stay hotels to be better off, with a larger share in the “late stable” realm. Home sharing/AirBNB/VRBO is considered to be deep into decline or at the bottom, but is also heavy in “don’t know” responses, reflecting the uncertain future of this type of real estate.
Looking one year into the future, respondents foresee improvement. The largest number of respondents predict that the hotel business will be in the early stages of recovery within one year. The operative word might be “early stages,” as a large share expect business/luxury hotels to still be at the bottom, or still in decline.
Full-service hotels are struggling the most in terms of occupancy right now. That is due to the emphasis on amenities on these properties, and the larger congregations of people in those hotels, which raises health concerns among would-be guests. Also, the proliferation of online meetings means that fewer companies feel the need to hold meetings in large hotels. “Companies don’t see as much of a need to pay for an expensive trip to Las Vegas for a meeting,” said Lyman Phillips, CEO of Golden Lyon, a capital provider in the hospitality sector.
Select-service and limited-service hotels are doing somewhat better in terms of occupancy rates, partly because those properties have fewer items that have to be cleaned and fewer points of contact with people. People can check in and go straight to their room without coming into contact with crowds, and often can walk outside to their own door, which makes social distancing easier.
Hotels are stepping up their efforts to sanitize and to make guests feel safe. “Housekeeping may come by and just drop off soaps and towels outside your door, avoiding unnecessary contact,” said Phillips.
Suffice it to say that the hotels are taking health and cleanliness very seriously now. They are establishing new cleaning protocols, doing all they can to reassure travelers. It will be a lot of work, but they are optimistic that guests will be back.
And, people talk about pent-up demand; this time it’s literal. People have been penned (pent) up in their houses, and they are yearning to get out and do something fun. Not to mention the birthday trips, weddings, honeymoons, and anniversaries that got postponed. When travel becomes safer, I’m going to be watching for a rapid increase in hotel business, hopefully from poolside.