Hotel owners believe they’re in position to fully bounce back from the challenges they faced during the COVID-19 pandemic, according to a recent Marcus & Millichap analysis, GlobeSt. reports. Room rates are currently within 3 percent of their all-time high, while occupancy has increased 2,000 basis points from the low point it hit during the pandemic.
On the other hand, industry employment is 20 percent down from pre-pandemic levels, which has made it difficult for hotels to service all of their rooms. Paying higher wages to the staff they do have has led to room rate increases. With mask mandates mostly lifted, Marcus & Millichap noted summer travel expectations are high.
Here are three reasons why hoteliers are optimistic about a complete industry rebound.
Increased sales volume
Hospitality sales volume went up 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 recovery of urban markets and hotels that cater to group and business transient demand,” Davis said. “In fact, through the end of April, the RevPAR in urban markets has grown more than any other US market type. As more companies return to office and COVID restrictions are completely relaxed, 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, partner at Duane Morris.
“Hotels are being freed from the COVID shackles of the past two-plus years,” Haas told GlobeSt. “Everyone seems to be traveling someplace this summer. So far, the summer travel bug is supplanting inflationary pressures on consumers who have already made their summer travel plans and are sticking with them.”
Meanwhile, Shawn Gracey, executive vice president of Key International, noted that the rising summer travel numbers are also due in part to people’s “pent-up” demand to get away, especially in outdoor destinations, whether they’re out in nature or on the coast.
“The hospitality sector will continue to experience sustained growth with increasing domestic and international travel,” Gracey said.
It also helps that the leisure and extended stay sectors are two of most resilient asset classes in the hospitality arena, according to RREAF Holdings Chairman and CEO Kip Sowden.
“Whether it is the leisure hospitality assets or extended stay assets, these are pivotal areas that will continue to thrive despite inflationary pressure,” Sowden told GlobeSt. “For example, beach-front resort properties are hotels tourists are going to flock to, now that summer is here.”
Better crisis preparation
Hotel room rates did not falter much during the COVID-19 pandemic, especially in the economy and mid-priced sectors, according to Ryan McAndrew, real estate senior analyst with RSM US. Rates remain strong during the health crisis partly because hotel management and owners recognized that pricing power was yielded during the Great Financial Crisis and had a plan in place to remain stead throughout the recovery.
“Hotel operators were well aware that room demand was artificially flattened due to COVID-19 lockdowns, so there was little incentive to drop rates to increase traffic,” McAndrew told GlobeSt. “As a result, rate growth should continue for all hotel segments on the strength of leisure travel and the return of international, group and business travelers.”
Some concern remains
While hoteliers remain optimistic about an industry-wide recovery, there could still be some bumpy roads ahead. A lot of lost hospitality jobs still have not been replaced, for example. Meanwhile, the decreased income hotel owners saw during the pandemic has now made it more difficult to keep up with the maintenance and active management required to make their properties profitable. Such issues could lead to a market comprising distressed hotel sales, according to Desi Co, Managing Partner at Accord Group.
“Even though the hotel industry is recovering, in some cases, there will not be ample time for hotel groups to be able to refinance existing debt or make the necessary capital improvements that have been neglected over the last couple years,” Co said.