REAL ESTATE NEWS

HOSPITALITY NEARLY FULLY RECOVERED FROM PANDEMIC

Published on Friday, August 12, 2022

Demand, room rates, revenue, sales performing well, Marcus & Millichap reports.

 

The hospitality industry continues to recover from arguably its worst period in history – the health crisis of the past two years that devastated travel, revenue, occupancy and property sales.

Marcus & Millichap’s Hospitality National Report - Midyear 2022 issued this week showed room demand through the first six months of the year to be in line with bookings from that period in 2017 and 2018 and down just 3 percent from 2019.

The average daily rate for the 12-month period ending in June was $140.59, up 7 percent from the previous high set in February 2020. 

Urban City Center Performance to ‘Accelerate’

Tyler Kent, principal and managing director of Opwest Partners, tells GlobeSt.com that the overall fundamentals for the hotel market continue to improve from the low point of the pandemic in 2020 and that many markets, and especially leisure and drive-to destinations have seen a full revPAR recovery surpassing 2019 levels. 

“Market fundamentals are sound as room supply growth (which has historically been 1.8% compounded annually the past 20 years) has not kept up with the increases in demand,” Kent said. “This is especially the case in many markets where projects were canceled or put on hold due to lack of financing in 2020 and 2021.

“We believe that the urban city center market’s performance will accelerate over the next 12 months with the re-emergence of international travel, as well as the pickup in group and business travel that is showing strong improvement year-over-year. Business transient and group/meeting business demand will recover to 2018 and 2019 levels over the next 18 months.”

Can Growth Outpace Inflation?

But some experts say the situation is more complicated. 

Grant Puleo, a partner at Duane Morris, tells GlobeSt.com that although the average daily rate (ADR) is currently exceeding pre-COVID (2019) levels, when adjusted for inflation, ADR is actually at or below 2019 levels. 

“While many expect continued increases in pent up leisure and group business travel, it remains unclear to me if such growth will outpace inflation and result in growth in ADR and RevPAR going forward into the foreseeable future, especially if we continue to see a softening of the economy, increases in labor costs, recession fears and/or unexpected world events,” Puleo said.

Sales Climate Improving

On the sales side, fewer deals (about 10%) are taking place for distress and delinquency factors. CMBS loan delinquency fell to a pandemic-era low of 8.48 percent in May. 

Higher interest rates could however add complications for CMBS loans that are about to mature, according to the report.

Meanwhile, “recovering fundamentals and a more typical travel outlook are drawing investment to higher service level assets,” said the report. “Geographical preferences may have shifted, however. Sales activity advanced the fastest in Southern states, such as Arkansas, South Carolina and Kentucky. Trading has also improved notably in parts of the Midwest and Northeast, although the most liquid markets are still in California, Florida and Texas.”