Only three full months into 2020 and the rest of the year will not go as previously thought, so industry analysts have revised their forecasts for this year and next.
REPORT FROM THE U.S.—A massive drop in demand has forced hotel industry forecasters to drastically reduce their 2020 and 2021 projections, going from a mostly flat environment to a significant drop off in occupancy and revenue.
STR with Tourism Economics released a revised forecast for 2020 U.S. hotel performance, and CBRE has released a revision of its revised forecast from just weeks ago, with PwC still expected to revise earlier projections.
STR/Tourism Economics’ revised forecast shows decreases in each key performance metric for the remainder of 2020 but strong returns in 2021. It calls for supply dropping 14.9% year over year in 2020 but growing by 15.6% the next year while demand falls 51.2% this year and returning with 81.8% growth in 2021.
Occupancy is expected to drop 42.6% to 37.9% in 2020 but grow 57.3% in 2021 to 59.7%. Average daily rate is expected to decrease by 13.9% to $112.91 this year and grow by 3.7% to $117.05 in 2021. Revenue per available room is projected to fall 50.6% to $42.84 in 2020 and then grow by 63.1% in 2021 to $69.86.
CBRE’s latest revised forecast shows occupancy dropping 35.4% this year to 42.7% but growing 40.2% to 59.9% in 2021. ADR is projected to fall 16.2% to $110.01 in 2020 and then grow 12.4% to $123.64 in 2021. RevPAR again shows the sharpest changes of the three key performance metrics; CBRE projects it will drop 45.8% in 2020 to $46.98 but increase by 57.5% in 2021 to $74.02.
What they mean
“This is the steepest RevPAR decline we have ever forecasted in STR history,” said Jan Freitag, SVP of lodging insights at STR. “It is, by the same token, the sharpest RevPAR recovery we have ever forecasted for sure.”
STR is the parent company of Hotel News Now.
The 15% decline in supply is an indicator of properties taken offline for a finite period of time, he said. STR expects most of those the hotels that closed starting in mid-March will reopen by the end of the year. The forecast for the decline in room demand is huge toward the end of the second quarter, but it is expected to ease gradually heading into the third and fourth quarters, he said.
Both room demand and RevPAR are projected to see a rapid recovery in 2021, but it’s clear the return of ADR will not be on the same pace, he said.
Looking at previous down cycles, there’s a pattern in how quickly ADR returns compared to the time it took to cut rates, Freitag said. Looking at ADR’s peak around the time of the 9/11 attacks to the lowest annualized number in the cycle was 12 months, but the recovery from trough to peak 9/11 was 24 months. STR observed the same pattern in 2009, where the annualized ADR declined for 17 months before it turned and recovered over the next 36 months.
“No two down cycles are the same, and no two recessions are the same, but given this pattern from history, it seems like it is not an unreasonable thing to expect,” he said.
The supply increases previously anticipated for 2020 and 2021 will not materialize, and they will at minimum be delayed, said Anne Lloyd-Jones, senior managing director and director of consulting and valuation at HVS. A hotel that was supposed to open in April 2020 is not going to open now, she said. Hotels are suspending operations, and there’s no demand. Projects that are in the initial stages of development might disappear.
“Things that are earlier in the pipeline may well be canceled because developers may move away from the sector, lenders may well stay away from the sector, certainly from a new construction perspective,” she said.
Looking at past pandemics and other shocks to the hospitality industry, the recovery looks like a checkmark, said Jamie Lane, senior managing economist of Econometric Advisors and CBRE Hotels Americas Research. There’s a sharp decline, where the hotel industry is now, and then a slow climb out of it once travel restrictions and the fear of travel begins to ease, he said.
“It is going to be a slow recovery,” he said.
Once the travel restrictions ease, demand will accelerate as people want to get back to normal, he said. He believes there is pent-up demand to take vacations, either new ones or those postponed during the pandemic.
A recent survey by destination analysts showed that 62% of people surveyed either agreed or strongly agreed that they missed traveling and can’t wait to do it again, Lloyd-Jones said.
“So 62% is a pretty healthy number when you consider the scare, if you will,” she said.
It’s a question of how quickly people will return to their normal travel activities, she said. Based on what’s been seen in China, it appears to be a steady but slow recovery, but she believes the U.S. recovery might be a bit more brisk.
The stimulus package will help immensely, Lane said. It will help tide people over until they get back to work, and it provides significant stimulus to companies to rehire workers. Past stimulus packages were meant to encourage consumer spending and travel, but that’s not what the country needs right now, he said. People need to shelter in place and look after their health for the time being.
“The restrictions around the movement of people are to help us to recover from this pandemic more quickly, so (the stimulus) is to tide people over until those travel restrictions can be eased,” he said. “And then, hopefully, they get back to work and everyone gets back to staying in hotels (and) traveling, and … the economy is able to start significantly growing again in the back half of the year.”
The CARES Act targets small businesses, and most of the hotel properties in the U.S. fall under the small business classification, Lloyd-Jones said, with various loans designed to support them. However, there’s some concern over the Paycheck Protection Program in the CARES Act because it might not be what hoteliers need in terms of support for the individual properties, she said. Many of the larger companies might not qualify, and those are dependent on group business, which is gone at the moment.
One wild card is when international travelers want to return to the U.S. given what is going on here due to the U.S. having the most cases of COVID-19, Freitag said. There will be some green shoots of domestic travel toward the end of the year, but he expects international travelers may want to stay away until there is an all-clear everywhere in the U.S.
The U.S. doesn’t have a comprehensive federal approach to this, he said. Everything is happening on a state-by-state basis, sometimes even city-by-city, which is different from China’s lockdown that seems to have slowed the spread and flattened the curve, he said. It’s unknown whether there will be a second wave of cases if people get lax, but China is seeing a slight regeneration of occupancy.
Due to that fragmented approach, Freitag said he now expects a longer period of recovery, after previously believing the U.S. was just eight weeks behind China.