The hospitality industry continues to recover from its worst period in history – the health crisis of the past two years that devastated travel, revenue, occupancy and property sales.
Marcus & Millichap’s National Hospitality Report – Mid-Year 2022 released this week showed that room demand in the first six months of the year was in line with bookings for this period in 2017 and 2018 and down just 3% from 2019.
The average daily rate for the 12 months ending in June was $140.59, up 7% from the previous high set in February 2020.
Urban downtown performance will “accelerate”
Tyler Kent, managing director of Opwest Partners, told GlobeSt.com that overall hotel market fundamentals continue to improve from the pandemic low point in 2020 and that many markets, and particularly leisure destinations and driving, saw a full revPAR recovery exceeding 2019 levels.
“The market fundamentals are sound, as the growth in room supply (which has consistently been 1.8% per year for the past 20 years) has not kept pace with the increase in demand,” he said. said Kent. “This is particularly the case in many markets where projects have been canceled or put on hold due to lack of funding in 2020 and 2021.
“We believe that the performance of the urban downtown market will accelerate over the next 12 months with the re-emergence of international travel, as well as the recovery of group and business travel which shows strong year-on-year improvement. on the other. Demand for transitional and group/meetings business will return to 2018 and 2019 levels over the next 18 months.
Can growth outpace inflation?
But some experts say the situation is more complicated.
Grant Puleo, a partner of Duane Morris, told GlobeSt.com that although the average daily rate (ADR) is currently above pre-COVID (2019) levels, when adjusted for inflation, the ADR is actually at or below 2019 levels.
“While many expect a continued increase in pent-up leisure and business group travel, I don’t know if this growth will outpace inflation and drive ADR and RevPAR growth for the foreseeable future. , especially if we continue to see a slowing economy, rising labor costs, recession fears and/or unexpected global events,” Puleo said.
Improvement of the sales climate
On the sell side, fewer transactions (around 10%) occur for distress and delinquency factors. Defaults on CMBS loans fell to a pandemic-era low of 8.48% in May.
Higher interest rates, however, could add complications for CMBS loans that are about to mature, according to the report.
Meanwhile, “recovering fundamentals and a more typical travel outlook are attracting investment into higher service level assets,” the report said. “Geographical preferences may have changed, though. Sales activity grew fastest in Southern states, such as Arkansas, South Carolina and Kentucky. Trade has also improved notably in parts of the Midwest and Northeast, although the most liquid markets are still in California, Florida and Texas.