Hotel performance levels highest since pandemic — is hospitality sector turning the corner?

Transaction data still suggests recovery gap between location types, CoStar says

New data from STR revealed that the U.S. hotel industry saw an encouraging March, posting its highest performance levels since the pandemic started.

Hotel occupancy in March was at 54.6%, up from 45.3% in February and highest for any month since February 2020. Revenue per available room was also at its highest point since February last year, rising to $57.87 from $44.57 one month prior. Average daily rate was at $106.08, highest since March 2020.

On the whole, performance numbers predictably remain down from pre-pandemic norms; consider, for example, that occupancy in March 2019 was at 68.4%, with revenue per available room at $90.78. Still, with metrics at pandemic-era highs, the outlook is an encouraging one for a segment still on shaky footing thanks to COVID-19.

A recent report from Real Capital Analytics (RCA) confirmed that the hotel sector has seen a significant surge in distressed sales as a percentage of sector volume — the only major commercial sector to exhibit a spike in distressed sales activity since the onset of the pandemic. Between March 2020 and February 2021, 8% of hotel sales between March 2020 and February 2021 involving a distressed asset; no other sector has seen distressed sales account for more than 5%. With hospitality performance struggling, total hotel transaction activity during that timeframe has been unsurprisingly weak, tallying just $10.6 billion in deal volume compared to $36.6 billion in the previous 12-month period.

RCA’s first quarter 2021 data actually shows an outright gain in deal activity for the hospitality sector, with $5.6 billion in transaction volume equating to a 13% year-over-year bounce. That headline figure, however, is misleading given that much of it was driven by one transaction, the closing of Colony Capital’s sale of nearly 200 properties. Taking that singular deal out of the equation leaves the sector logging a 21% annual drop in deal activity for the quarter.

March’s performance figures, though, paint the picture of a sector potentially and finally turning the corner as broad deployment of vaccines boost the consumer travel industry.

“The resort, interstate and suburban location types have had a really strong beginning into 2021,” said Jan Freitag, national director of hospitality analytics for the CoStar Group, on STR’s blog. “This is driven up by leisure travelers who took to the roads and especially lifted occupancies in the interstate and roadside hotels.”

With companies remaining cautious of sending employees around the country and corporate travel still lagging to kick off the year, hotels in urban cores unsurprisingly still trailed other location types in the first quarter of 2021.

That dichotomy was evident when looking at first quarter 2021 hotel transactions, CoStar reported. For example, the 448-room Hyatt Regency Austin, an upscale central business district hotel, was acquired in March by Host Hotels & Resorts for about $161 million. The sale price, STR noted, represented a 20-25% discount to pre-COVID pricing.

Meanwhile, Kupperman Companies bought the 67-year-old Mountain Chalet in Aspen during the same month for $68 million — or just over $1 million per room. According to CoStar, such a deal suggests that investors are optimistic about the expected return of high-end luxury leisure travel in resort areas.

“We fully expect that with pent-up savings, a strong stock market and continued high employment rates for knowledge workers, luxury properties will continue to do well and will continue to trade at multiples that are not impacted by the pandemic,” said Freitag.

If increasing vaccinations spur corporate transit demand as expected to help pick up central business district hotels, the outlook for such properties could begin to rebound as well by the fall. Such an outcome would only boost a full hospitality sector revival that some recovering subsectors may already be signaling.

“The expectation is that occupancy will continue to solidify throughout the summer with ongoing leisure demand, then hopefully gets a boost as corporate group travel demand resumes post Labor Day,” Freitag said.


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