Among commercial real estate asset classes, hotels have been the hardest hit by the COVID-19 pandemic. But prospects for the hospitality industry are looking up after the worst year on record for occupancy rates and profits. CBRE’s Rachael Rothman spoke with Scotsman Guide about the outlook for this sector.
How are hotels faring right now?
Average performance data doesn’t tell the whole story. You have markets like Virginia Beach, Virginia, or Miami and Fort Lauderdale, doing very well. And you have other markets in the northern regions of the United States — global gateway cities, dense markets like Chicago, San Francisco, New York City — that are underperforming the market averages by a wide margin. So, it’s really a tale of the haves and the have-nots. You want to dig deeply into each and every market to understand the dynamics but, on average, we are still down probably about 30% versus 2019, with some real winners and losers.
Given that companies are doing more business remotely and may not travel as much for meetings, do you think business travel will ever fully bounce back?
Well, we could argue that because more people will be working remotely, that there will be an increased need for them to travel to stay in touch with their key stakeholders. There’s also a renewed focus on environmental issues. Instead of an individual traveler taking three trips to California, each to do one or two meetings in a day and never spending a night in a hotel, you may see more travelers make one trip across the continent and stay two or three days in a hotel, get all their meetings done and then come back.
There could also be an argument that we often made trips to meet with one key account and that some of those meetings could be replaced by telecommuting or by videoconferencing. I’m curious to see what happens when competitive pressures increase. Will travelers be more willing to make that trip to meet the client where they are? Are they more likely to travel if they think it is key to closing a deal? If so, they will still want to travel. Right now, it still is an open question.
If you are an upscale urban property, particularly in a northern market or a global gateway city, you are still experiencing significant headwinds.
What hotel types are struggling the most?
Those located in a major urban market. There are limitations on international travel. It’s also a little bit hard to unpack what the true corporate trends are. People have not yet returned to the office and kids are out of school; however, many summer programs are not in full swing this year. So, that makes it more difficult for people to travel for business. If you are an upscale urban property, particularly in a northern market or a global gateway city, you are likely still experiencing significant headwinds.
Has the pandemic benefited certain markets in any way?
Some markets are actually doing better than they were in 2019, which was at an all-time high for occupancy. Certain markets in Texas; in Florida; Virginia Beach; Charleston and Myrtle Beach, South Carolina, are benefiting from the resurgence in leisure travel and from the fact that many of the borders with overseas countries are closed. Hawaii would be another market benefiting from these dynamics.
Will many distressed hotel assets wind up being sold?
Not as many distressed assets have come to market as was initially thought. Of course, the vaccine rollout came faster than many of us expected and so fundamentals have probably been improving faster than some thought.
Maybe after we’ve seen what trends look like this winter, when people get a better sense for what business demand will look like, how trends will be in the winter — particularly in the northern markets — that transparency and information will help the market clear. It will help sellers understand if they do want to sell and it will help buyers in what price they want to pay. It typically isn’t until later in the cycle when most distressed assets begin to change hands. ●