No sugarcoating US hotels’ record drops in March
No sugarcoating US hotels’ record drops in March
27 APRIL 2020 8:31 AM

The onset of coronavirus (COVID-19) in March brought the most severe performance declines for the U.S. hotel industry and the end to the up cycle.

HENDERSONVILLE, Tennessee—The COVID-19 pandemic impact is clearly visible in the STR U.S. monthly data and will be for a while to come.

(STR is the parent company of Hotel News Now.)

1. A sign of things to come
You knew it was going to be bad, so let’s not sugarcoat it. RevPAR declined 51.9%, the steepest monthly decline we have ever recorded in our 35-year history.

If you could just insert in your head this half-sentence: “which is the worst drop ever recorded” after every single percent change number in this document, that will save me some work. Demand declined 41.2%, which is blah blah blah you get the idea.

2. 28-day RevPAR change
So, if the data is all bad all the time, what’s the point in discussing it? The Stockdale Paradox works well for our situation in the hotel industry:

Yes, we will prevail together in the end. I have faith in that. And yes, the brutal facts of the current reality must be confronted, so let this article serve as that brutal reality check that no one wants but we all need.

And, speaking of “brutal,” here are the weekly results through April 11:

In other words, April may show worse declines than March.

3. A look at the (already outdated) updated 2020 forecast
We were asked to come up with a new RevPAR forecast after four weeks of bad data, so take this with a grain of salt. It is based on the Tourism Economics GDP forecast of 0.2% decline for the year, which in the interim has been revised down to 4% decline, so I would suggest that our 2021 recovery forecast is at risk.

We fully expect room demand to be cut in half, or worse, and some hotels to close, albeit temporarily. The road to recovery is never V-shaped, even though the demand increase may look like it. But an 80%-plus demand increase still leaves a difference of 120 million roomnights in 2021 compared to 2019. ADR recovery is another story, definitely not a V. Probably not a U, either. Jesper Palmqvist from our Singapore office called it a NASCAR curve—and despite him living in Singapore where they don’t have NASCAR, I’ll go with it—gently upward sloping and quite long that will likely be the shape of the ADR recovery trajectory.

Because doing math is hard, and doing it in your head is even harder, here the absolute values for 2020 and 2021:

And just for shock value, you look at the 2013 and see, my oh my, that was the last time when RevPAR was at around $70. By the way, the drop from $87 to $70 in RevPAR equates to 20% drop, so there definitely will not be a recovery in 2021.

This forecast was based on weekly data, and now that we published March, Tourism Economics and STR’s Consulting & Analytics division will put their smart heads together and release the new 2020/2021 forecast in early May. Stay tuned. You might want to grab a drink.

4. Class data
The U.S. RevPAR decline was, of course, witnessed across all classes. No surprise, the classes that rely most heavily on group demand got hit hardest.

So, the lower end of the hotel industry saw RevPAR evaporate neither quite as much nor quite as quickly. Unfortunately, it is probably fair to assume that the occupancy level we are reporting now is almost, but not quite, the base level of occupancy. In other words, it is likely that occupancy will deteriorate a little further as 28 day average shows:

So expect high single digits or around 10% for the group-oriented hotels and approximately 30% for the lower end. This seems to be the new normal.

5. Pipeline data
To add insult to injury, total number of hotel rooms in construction is now at an all-time high, just under 215,000 rooms. This surpassed the prior peak from 2007 and will likely stay this high for a few months until it declines. As you can see in the chart, the number of rooms in construction declined rapidly post-2008 as projects that were in construction opened and projects that were in Planning and Final Planning got moved to Abandoned or Deferred. There’s no reason to think that the pattern will be any different this time around.

And, indeed, we can look at the Phase Progression Tab in the Pipeline deliverable to see that the great “letting go” has already started. Cue the “Frozen” soundtrack.

We will monitor this chart closely going forward to comment on the likely decline.

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.

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