NATIONAL REPORT—During the “Meet the Money Online: State of the Hospitality Industry Today” webinar, industry experts offered a look at how the COVID-19 pandemic has affected hotels and a few predictions on how long recovery may last.
Jim Butler, partner, chairman, global hospitality group, JMBM, and conference organizer of Meet the Money, moderated the session, which had more than 1,000 attendees.
Vail Ross, SVP at STR said that the month of April was the worst she has seen for the hospitality industry in her 16 years with the company. “These numbers are quite staggering and when you look at them, they are very difficult to absorb,” she said. “For the month of April, we saw room supply down almost 12%. We are having closures left and right with hoteliers—oftentimes temporary and, in some cases, not necessarily up to their discretion, but due to the jurisdictions in which they lie… Room demand was down almost 68% and occupancy for the total U.S. for the month was 24.5%. Obviously, that is having a dramatic pull on the overall RevPAR, which was down almost 80% for the month.”
In terms of the recovery, Ross said that it will take some time for ADR to recover fully. “When this all happened, we wanted to look at past downturns: What did we learn and how can this apply to the environment we are in today?” she said. “There really is no comparison to any other downturn… What we have learned in past downturns is that we never see a V-shaped recovery as it relates to ADR. It, on average, will take twice as long from when it took to drop as it will to recover. As we know, we have seen ADR declines way more extensively this time around than the past two downturns. Yet again, we do not necessarily predict that an ADR rebound will look as a V-shape. It will probably be a much longer U and, depending on if we have continued outbreaks, it could look more like a W as we move on.”
For 2020 and 2021, STR is forecasting that demand will be down 45% this year and up almost 50% in the next. RevPAR is predicted to be down more than 57%, with RevPAR up 48% in 2021. “While those numbers do seem quite high, do keep in mind that when we look at the actuals, it is not to where we were,” Ross said. “We are not getting back to where we were in 2019. It is our forecast that we will likely not get back to 2019 numbers until 2024 and potentially 2025.”
Jamie Lane, senior director, CBRE Hotels Research, also provided his company’s forecast. “The U.S. hasn’t been here before, but we have enough confidence in prior tragedies that this too will bounce back,” he said. “Using Asia as an example for today’s pandemic, the economic-activity recovery will be faster than that of the great financial crisis and 9/11 periods.”
Lane said that while the numbers for 2020 Q2 will be “brutal,” the true tests of the forecast are going to be rebound in Q3, which CBRE has at 29% annualized GDP growth. “Where does this growth come from?” he said. “First, spending activities that accompanied the reopening of restaurants, leisure and hospitality-type industries in the urge to get back to normal life for consumers. As the recovery gets going, it is going to be supported by unprecedented levels of government support, fiscal monetary policy and some that we haven’t even seen enacted yet. For the time being, we are in the uncomfortable position of waiting for this to happen.”
CBRE is predicting that for hotels, the recovery will not be V-shaped, but more like a “Nike swoosh,” he said. “So a quick pullback and then a prolonged recovery. We are forecasting a variety of scenarios both economically and for the hospitality industry.” (Click here for CBRE’s full forecast.)
Suzanne R. Mellen, senior managing director, HVS, offered her take on hotel values and cap rates. “Historically, it has not been that difficult a topic to talk about, but right now, it is one of the more challenging given the uncertainty and what you have been hearing about today,” she said. “There are a lot of people out there saying, ‘How can anybody value anything now, nobody knows. There is no way. Anyone who tells you you can value something is just lying.’ I just want to say that is not true. There are people who are valuing assets every day now. There are people who are gathering capital to decide what to buy. There are sellers who are determining what their assets are worth.”
HVS is recommending that discount rates should be used to value hotels right now. “Cap rates are really irrelevant right now,” she said. “They are going to be very high in trailing income. They are going to be very low on current net income, because for many hotels, there isn’t any net income, even if they are operating or if they are closed.”
Based on HVS modeling, the chart below forecasts when hotels will again reach their 2019 values.
Daniel H. Lesser, president/CEO, LW Hospitality Advisors, offered perspective on the pandemic by looking at other crises that the world has faced in the past, including the Cuban Missile Crisis, the oil embargo of the 1970s and 9/11. “The point is that this is terrible; it is awful. We are all experiencing pain, but we are going to get through this, just as we have all of these prior events,” he said.