The U.S. hotel market emerged from the pandemic proving its resiliency. Topical market optics indicate a trend toward recovery, although, thorough analysis suggests a potential slow in activity as the off-season approaches.
1 – Hotel Demand: An Evolving Road to Recovery
Up to this point, the recovery in hotel demand has experienced several setbacks—the emergence of the Delta variant in July of 2021 and the Omicron variant in October 2021, both of which stalled the demand recovery curve, the conflict in Ukraine beginning in early 2022 and an inflationary disruption that could last several more months. Considering these impacts, hotel fundamentals are still strong and gaining momentum.
Currently, hotel room rates are posting consistent record levels over the past few months, and revenue per available room (RevPAR) is outpacing the same time period in 2019.
2 – RevPAR and Hotel Size Correlation Rebalance
At the peak of the pandemic in 2020, with respect to hotel demand, the correlation between RevPAR performance and hotel size (room count) was a staggering negative 95%. By the end of the first quarter of 2021, COVID-19 cases declined, demand segments improved, transaction activity escalated and airline traffic returned. As a result, RevPAR and size correlation rebalanced, due to the rebounding corporate and group segments.
3 – Cause for Optimism and Consideration: Recovery Progress Impacted by Global Socio-Economic Factors
Progress for the hospitality market has been stymied by high inflation rates, labor pool constrictions and disruptions in Ukraine.
The hospitality labor index was impacted during the pandemic in 2020 and spent the next several quarters rebounding to 2019 staffing levels. Inflation concerns then emerged at the time conflict erupted in Ukraine, prompting another reduction in staff at the beginning of 2022. Although staffing levels have almost recovered, there is still a long way to go before the number of industry employees match those employed at the end of 2019.
Considering the number of hotels that are still closed (nearly 3,000), the index may not recover for several more years. Staffing shortages and wage considerations are a major concern among many as the industry recovers.
The hospitality industry appears to be on the rebound, in comparison to historical trends. However, the environment driving hotel top-line successes—average daily rate (ADR) increases on the heels of inflationary spikes, atypically strong leisure demand, etc.—are not sustainable. For the industry to truly recover, operators need to adjust business models to ensure net income margins return to normal.
Executive Vice President
Specialty Practice Leader – Hospitality, Gaming & Leisure
Valuation & Advisory
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