Hotel asset managers have an optimistic outlook for the hospitality industry, according to the results of the Hospitality Asset Managers Association (HAMA’s) recently released Fall 2022 Industry Outlook Survey. The semi-annual report collected the opinions, experiences and predictions of approximately 70 hotel asset managers concerning the hospitality industry since the beginning of the pandemic through today. The survey also addressed respondent’s thoughts on the current state of the industry.
Some major highlights include:
- More than half of the asset managers surveyed believe that most of their portfolios will exceed 2022 budgeted RevPAR;
- Nearly half feel that overall RevPAR will return to pre-COVID-19 levels by 2023.
- Approximately 80 percent are seeking new acquisition opportunities.
That positive sentiment is for the large part echoed by data released by the American Hotel and Lodging Association (AHLA), which projects that U.S. hotel leisure travel revenue will end 2022 14 percent above 2019 levels. Hotel business travel revenue is expected to come within 1 percent of 2019 levels.
Though on the right trajectory, the U.S. hotel industry hasn’t completely bounced back from the pandemic impact yet, according to industry associations. That’s largely due to the fact that business travel continues to lag, likely because of COVID-era adjustments such as many forums and conferences pivoting to a virtual model. Recovery also remains uneven geographically, with sunny Florida continuing to experience a boom of leisure travel, while major cities like New York, Washington D.C. and San Francisco are expected to miss their 2019 leisure revenue benchmarks per AHLA data.
International travel restrictions have been a big part of the reason hotels in some of these major hubs haven’t fully rebounded. For example, prior to the pandemic, nearly one-third of travelers to San Francisco were international tourists, says Sausalito, Calif.-based Andrea Grigg, head of global asset management in the hotel & hospitality group of real estate services firm JLL. “The removal of international travel restrictions, coupled with the reopening of nearly all tourist attractions, is expected to further boost performance in the near term,” she notes.
New York’s hospitality sector, for example, is well on its way back, with August 2022 RevPAR for luxury hotels at 102.5 percent relative to the same period in 2019, according to Grigg. “NYC continues to dominate luxury RevPAR recovery among urban markets by exerting pricing power from increased leisure travelers and the reemergence of less price-sensitive consumers.”
Among top concerns cited by hospitality asset managers are labor availability (86.76 percent) and labor costs (85.29 percent), as the industry struggles to fill a labor shortage and the country grapples with inflation and recession risk. “There has never been a more critical time to evaluate operational efficiencies. Increasing labor costs and cost of sales will challenge the return to 2019 bottom profitability despite rate increases,” says Grigg.
Feeding into inflation and recession risks are concerns about sustained demand, with 42.64 percent of asset managers citing it as a major factor.
Despite the cost of labor and other concerns, a large majority of those surveyed feel confident that RevPAR will return to 2019 levels for the U.S. as a whole at some point in 2023 or 2024. To underscore this prediction, some 80 percent said that they are actively pursuing acquisitions. Over 50 percent are anticipating an increase in acquisition prices for full-service and luxury properties in resort locations, while approximately 25 percent feel that there will be an increase in value for selective-service properties and those in lower categories.
Another positive indicator for the industry is that very few respondents report having to hand back keys to their lender or enter into a forced sale situation.
Though inflation and a global recession remain top of mind for many in the hotel industry, Grigg notes that confidence remains high in the positive predictions for RevPAR being on track to return to 2019 levels and beyond. According to her, despite business travel revenue taking a hit, the industry is well positioned to gain from more flexible and hybrid work schedules, which free up time for extended weekend getaways and other leisure travel not previously possible for many individuals. In addition, some companies are making off-site in-person gatherings a priority as they play a vital role in building strong employee engagement and culture.
As far as inflation concerns go, per JLL research cited by Grigg, hotels represent a defensive sector, with average ADR growth surpassing inflationary growth by 40 basis points from 2005 through 2021.
“Hotel rooms are leased every 24 hours, which bodes well in an inflationary environment,” says Grigg. “Hotels have historically been an inflation hedge due to their ability to manage/change pricing on a daily, hourly basis.”