US hotels improved in June, but recovery could stall
US hotels improved in June, but recovery could stall
30 JULY 2020 9:00 AM

The U.S. hotel industry reported a slight uptick in June, but the effects of the recent surge in COVID-19 cases have yet to be seen in the data.

HENDERSONVILLE, Tennessee—COVID-19 cases are surging and the full impact on the U.S. hotel industry has yet to materialize.

Of course, we saw the full impact of the threat of the virus in STR’s April data. Now the reality of new cases is here and will likely play out in our data going forward. (STR is the parent company of Hotel News Now.)

1. RevPAR decline takes the bronze
June revenue per available room declined 60.6%, the third-steepest decline ever. The only positive about that number is that it is not an 80% decrease, as we had reported in April, or May’s 71% decline. We have basically reported that RevPAR change is getting 10 percentage points better month over month.

Source: STR, © 2020 CoStar Realty Information, Inc.

July will also be better because the Fourth of July comparison was helpful, and the first two weeks of RevPAR change are better than a 60% decline.

Source: STR, © 2020 CoStar Realty Information, Inc.

2. Stock market performance continues to surprise
If you had invested in Baird/STR Hotel Stock Index companies in January, your portfolio would have been worth 35% less as of 16 July.

Source: STR, © 2020 CoStar Realty Information, Inc.

But if you had bought that same portfolio two months later, it would have gained almost 30%.

Source: STR, © 2020 CoStar Realty Information, Inc.

Timing is, indeed, everything. Watch for further stock market gyrations, especially on the hotel and cruise front, as news of possible vaccines emerge. The reasoning goes that with a vaccine, corporate travelers will be more inclined to go to group meetings, helping the large owners (REITs) and hence the large parent companies (C-corps) that collect the franchise fees.

3. International travel is kaput
The U.S. used to welcome between 2 million and 3 million foreign visitors per month, and in May that number was under 40,000.

Source: STR, © 2020 CoStar Realty Information, Inc.

As the number of COVID-19 cases surges, it is not unreasonable to assume that foreign leisure travelers will stay away, and foreign corporate demand dries up completely. This is going to hurt coastal markets and the larger metros disproportionally. Adam Sacks from Tourism Economics makes the point that since U.S. travelers will not be going overseas, there is an actually a possible net positive effect: When you take all 2019 outbound vs. all inbound travelers, there were more outbound trips, and if all those stay in the U.S., that could be a net positive.

4. Class data
The lower-rated properties continue to outperform full-service hotels, and economy-class hotels actually filled over half their rooms for the month. Given these very low occupancies, there is no compression—and no pricing power—and therefore the ADR and RevPAR declines are steepest at the upper end and will be for a while.

Source: STR, © 2020 CoStar Realty Information, Inc.

The temporary closures of hotels are indeed boosting occupancy, and it is not unrealistic to assume that owners are waiting for demand to rise until they reopen, which then will depress occupancies again. This will mostly impact the higher-end hotels where roughly one in four luxury rooms and about one in five upper-upscale rooms are closed.

Source: STR, © 2020 CoStar Realty Information, Inc.

5. Pipeline data
The number of rooms in construction dropped again, now clocking in at 214,700. From two months ago, that is a 5,500-room drop, and I would expect this trend to continue until the end of 2024—or longer. Yes, that seems like a long time, but look at the chart below: The last time peak to trough took three-and-a-half years. That means June 2020 plus three-and-a-half years gets you to 2024. Given that the last 120 days felt like 12 years, I wonder what 2024 will feel like.

Source: STR, © 2020 CoStar Realty Information, Inc.

The number of projects that were moved to on hold (but not completely shelved) increased sharply.

Source: STR, © 2020 CoStar Realty Information, Inc.

This was expected and I think we will see large numbers going forward. As I said last month, the “0” in the abandoned column is just a lag in reporting, not an actual lack of projects being stopped.

Jan Freitag is the SVP of lodging insights at STR.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • Bob Allen July 31, 2020 8:51 AM Reply

    Big difference on #1 is that hotels were closed in April, compared to June where they are open and only gaining 20% back. Not an equal comparison from that angle.

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