US pipeline shifts; closures hit new highs
US pipeline shifts; closures hit new highs
17 APRIL 2020 7:58 AM

March data showed hotel projects entering deferral or abandoned stages, while this week’s numbers reflect 16% of rooms across the nation are closed.

HENDERSONVILLE, Tennessee—New STR data shows that right as the global hotel industry entered the current phase of widespread closures due to the coronavirus (COVID-19) pandemic, hotel rooms in construction in the U.S. hit an all-time high—though that pipeline is beginning to show signs of change.

(STR is the parent company of HNN.)

In March, the U.S. had 215,000 hotel rooms in construction—surpassing prior-peak numbers of 211,000 rooms in December 2007. Tracking the pipeline undulations of the past to see how they may inform the present is something STR is monitoring, said Jan Freitag, STR SVP of lodging insights, on a webinar presentation Thursday.

March data also showed the first signs of projects in the U.S. moving away from construction phases.

“In the month of March, there were nine projects that went from final planning to deferred, and there were 21 projects that went from the planning phase to deferred,” Freitag said. “And also, in March, seven projects that were in planning were moved to abandoned.”

These pipeline shifts are expected, Freitag said, and will become more noticeable in April data.

All-time lows
As has been the case week over week, performance in the U.S. and Canada notched “all-time lows” for the week ending 11 April, Freitag said.

In the U.S., that meant occupancy dropped 69.8% to 21%, average daily rate dropped 45.6% to $74.18 and revenue per available room fell 83.6% to $15.61.

“It’s going to be like this for the next couple of weeks, maybe months, but then, ultimately, it will get better,” Freitag said. “For now, this is the environment that we live in.”

As of 16 April, 16% of U.S. rooms are closed, which is 848,000 of the 5.4 million hotel rooms in the U.S.

“And that number will likely increase,” Freitag said.

“These properties will open again,” he assured listeners. “There will only be a very few that are shuttered permanently.”

In Canada, 14.5% of the country’s 450,000 hotel rooms were closed as of 16 April.

Performance numbers for the week ending 11 April in Canada showed occupancy dropping 81.2% to 12%, ADR falling 33.8% to CA$101.34 ($72.07) and RevPAR dropping 87.6% to CA$12.17 ($8.65)

Some demand
While the number of closures is staggering, Freitag pointed out that hotels in the economy chain scales and extended-stay segments are still doing business—a pattern that follows past recessions.

“As we look at the absolute level of occupancy … economy properties are still selling one in three rooms per night.”

He cited the “strong base of demand” for economy rooms as economic and social distancing conditions lead people for various reasons to stay in hotels.

U.S. occupancies by state correlate to states that don’t have official shelter-in-place regulations, Freitag said.

Delaware and Alabama saw occupancies of 27.7% and 25.8% respectively for the week ending 11 April. On the lowest end of that scale, Hawaii had 7.1% occupancy and Washington, D.C. had 9.5%.

Open or close?
Freitag showed data correlating occupancy with GOP margin and net income margin, noting that occupancy breaking even tends to happen in the 45% to 55% range. So for properties at a 10% occupancy level, net income margin plummets.

“At limited-service properties, for every dollar that you make (at 10% occupancy) in revenue, you lose $1.75.”

Click here for all STR data, webinars and presentations focused on COVID-19.

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