Hotel owners believe they are able to fully recover from the challenges they have faced during the COVID-19 pandemic, according to a recent analysis by Marcus & Millichap, GlobeSt. reports. Room rates are currently within 3 percent of their all-time high, while occupancy is up 2,000 basis points from the low it hit during the pandemic.
On the other hand, employment in the industry is 20 percent lower than before the pandemic, which has made it difficult for hotels to service all their rooms. Paying higher wages to the staff they have has resulted in room rate increases. With mask mandates mostly lifted, Marcus & Millichap found that expectations for summer travel are high.
Here are three reasons hoteliers are optimistic about a full industry recovery.
Increased sales volume
Hospitality sales volume grew 111% in April YTD, Kevin Davis, Americas CEO, JLL Hotels & Hospitality Group, told GlobeSt.com.
“We are seeing a continuation of the strong performance of drive-to-leisure resorts and are now also seeing a rebound in urban markets and hotels serving groups and business traveler demand,” Davis said. “In fact, through the end of April, RevPAR in urban markets grew faster than any other US market type. As more businesses return to the office and COVID restrictions are fully eased, we expect this urban recovery to strengthen.”
Summer travel is back
After a two-year downturn, it looks like summer travel is approaching pre-pandemic numbers, according to David I. Haas, a partner at Duane Morris.
“Hotels are being released from the COVID shackles of the past two years,” Haas told GlobeSt. “Everyone seems to be traveling somewhere this summer. So far, summer travel fever is crowding out inflationary pressures on consumers who have already made and are sticking to their summer travel plans.”
Meanwhile, Shawn Gracey, executive vice president of Key International, noted that the surge in summer travel is also due in part to people’s “pent-up” demand for escape, particularly to outdoor destinations, whether they’re in nature or the outdoors Coast.
“The hospitality industry will continue to experience sustained growth with increased domestic and international travel,” Gracey said.
It also helps that the leisure and extended-stay sectors are two of the most resilient asset classes in hospitality, according to Kip Sowden, chairman and CEO of RREAF Holdings.
“Whether it’s leisure hotels or long-term stays, these are key areas that will continue to thrive despite inflationary pressures,” Sowden told GlobeSt. “For example, beachfront resorts are hotels that tourists will flock to now that summer is here.”
Better crisis preparation
According to Ryan McAndrew, senior real estate analyst at RSM US, hotel room prices have not faltered much during the COVID-19 pandemic, particularly in the economy and mid-price segment. Prices remain high during the health crisis, in part because hotel management and owners recognized that pricing power had waned during the Great Financial Crisis and had a plan to remain stable throughout the recovery.
“Hotel operators were aware that COVID-19 lockdowns had artificially flattened demand for rooms, so there was little incentive to lower rates to increase traffic,” McAndrew told GlobeSt. “As a result, rate growth should continue for all hotel segments due to the strength of leisure travel and the return of international, group and business travelers.”
A certain concern remains
While hoteliers remain optimistic about an industry-wide recovery, there may still be some bumpy roads ahead. Many jobs that were lost in the hospitality industry, for example, have still not been replaced. Meanwhile, hotel owners’ reduced revenues during the pandemic have made it harder to keep up with the maintenance and active management needed to keep their properties viable. Such problems could lead to a market of distressed hotel sales, according to Desi Co, managing partner of Accord Group.
“Although the hotel industry is recovering, in some cases hotel groups will not have enough time to refinance existing debt or make the necessary capital improvements that have been neglected in recent years,” said Co.