Outlook for the hospitality industry clouded by workforce and demand trajectory
Performance in hotels is on the rise, but economic and industry experts say data indicates that there is still a significant gap between current and pre-pandemic measures more than a year after the start of the COVID-19 pandemic.
The United States has experienced a massive recovery after 22 million jobs lost in the spring of 2020, Adam Sacks, president of Tourism Economics, an Oxford Economics company, said during a speech at the Hunter Hotel Investment Conference in Atlanta. However, the most recent jobs report was disappointing and there are still 8 million jobs left that have not been restored.
The unemployment rate is 6.1%, lower than the average for the last seven recessions dating back to 1960, when it averaged around 8%. The real unemployment rate, which takes into account those who have left the labor force, is closer to 10%.
Going back to 1990, the hotel industry has been a faster job creator than the rest of the economy, he said. This sector has grown faster than employment in the rest of the economy at 38%, compared to 29% over the past 30 years through 2019. In the past year, employment in the Accommodation industry fell back to 1988 levels. According to April data, 27% of all accommodation jobs are still being lost. The unemployment rate with the accommodation sector is 13.8% compared to the overall rate of 6.1%.
âThis is one of the top two concerns for our industry right now,â he said. “It’s ‘Will the demand come back?’ and “Will the employees come back?” But the reality is that there is still a long way to go before we get back to where we were again with 1 in 4 hosting jobs lost.
Traveler confidence is a strong indicator of where the hospitality industry is now, Sacks said. Confidence has grown steadily over the past few months. A November survey of American travelers found that only 39% felt comfortable traveling outside of their community. A survey at the end of April shows that this rate has risen to 60%.
The United States Centers for Disease Control and Prevention reports that 84% of people aged 65 and over have received at least one dose of a COVID-19 vaccine and that 58% of the general adult population has received an injection. As the vaccination rate has increased in the United States, the virus-related death rate has dropped significantly, down 81% from January, Sacks said.
The outlook on the demand side is improving rapidly, and one reason is the fiscal stimulus, Sacks said. Parts of the stimulus may have unintended consequences, but the money invested since the start of the pandemic is equivalent to 25% of the country’s gross domestic product.
The large-scale stimulus is stimulating economic growth across the country and will raise prices, he said. Oxford Economics expects inflation to hit 3% by the end of the year, but it will be transient as the recovery takes its course and economic growth weakens, allowing prices to calm down. Still, the country will experience historic levels of GDP growth this year, above 7%, after the economy contracted 3.5% in 2020.
Over the past year, consumers have spent their money on durable and non-durable goods while holding back on things like travel, he said. They divided their direct stimulus payments into three categories: spending, savings, and debt repayment.
âThe smaller part was spent on expenses,â he said. âWhat this means is that consumers are, in terms of their bottom line, incredibly well positioned to fuel a wave of travel because they’ve paid off some of their debt and saved. They’ve saved $ 1.7 trillion over the past year – a huge war chest as things start to open up. “
STR focused on demand, looking at where it is and how it’s coming back, said STR president Amanda Hite. Instead of year-over-year comparisons, STR indexed 2021 performance to 2019 levels. STR is CoStar’s hotel analytics company.
âDemand numbers are improving, and we are certainly past the high-impact COVID low point, but we are still quite far from our pre-pandemic demand levels,â she said.
In March, demand increased, more than expected thanks to spring break travel, she said. Preliminary results for April show demand levels have eased, but U.S. hotels are experiencing higher demand now than they were last summer when leisure demand picked up.
At the start of 2021, a third of U.S. hotels were reporting an occupancy rate of less than 30%, but that has improved every month, Hite said. Preliminary results for April show that 53% of reporting hotels had more than 60% occupancy, but it also means that almost half of hotels are not at the 60% level.
âThis recovery is very different depending on who you are, where you are, what type of hotel you have,â she says.
Hotels are mostly full on weekends, Friday and Saturday nights close to 2019 occupancy levels, while big gaps remain on weekdays, she said, noting hotels were doing “pretty well.” well âon the tariff.
While hotels in the economy and mid-range segments are seeing occupancy rates comparable to 2019 levels, those in the luxury and upscale segments are not yet there, she said. They do, however, achieve higher weekend rates than they were in 2019.
âLuxury hotels do well with the pricing strategy of companies that arrive these weekends,â she said.
STR has updated its forecast for the United States demand being stronger than expected during the first quarter. While the STR rate forecast was ‘perfect’, leisure demand came in stronger than expected at the end of the quarter to less than 12% lower than 2019 levels instead of a 30% decline, Hite said. This year’s forecast was released in January when the vaccines were approved, but people were not getting them yet.
The way STR expects business travel and group activities to pick up in the second half of 2021 has not changed, she said. It will start to recover in the second half of this year, but that will be in 2024 before group business travel and transitional business travel returns to 2019 levels.
Forecasts indicate that the US hotel industry will end the year with revenue per available room of $ 58 and an occupancy rate of just over 53%, she said. Occupancy will reach the 60% occupancy mark in 2022.
Accommodation delinquencies peaked at around 24% at the start of the pandemic, but they are trending down, said Rachael Rothman, head of hotel data research and analysis at CBRE. The most recent data suggests that 16% of commercial mortgage-backed securities are over 30 days past due, and it is likely that a large portion of those securities are currently closed assets.
âWe expect that number to drop even more,â she said. âAs hotels reopen and we move into the summer season, they should get even better.â
There are now nearly 150 active lenders in the hotel market since the start of the pandemic, when nearly all of them were out, Rothman said. The number is now still below the pre-pandemic level of 200 to 250, but that remains a significant improvement, she added. There are currently fewer lenders available for construction finance, which bodes well for the future of same-store RevPAR growth.
There is still significant growth in the supply which is expected to go live this year, but that will fade as there are fewer lenders for new projects and construction costs continue to rise, he said. she declared. Steel, iron and wood now cost more than 30% above historical averages. There are the same number of workers employed in construction as before the pandemic, making it a tight labor market. The cost of labor in construction has increased 6.1% since the start of the pandemic.
Hotel closures represent around 4.5% of the overall supply, with high-end and luxury properties in particular having around 15% still closed.