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Prolonged impact on the hospitality sector

Global Real Estate Perspective, August 2020

The pandemic is having a profound adverse effect on the hospitality industry with the ongoing pullback in both leisure and business travel along with the continuing cancellation of events. This is placing tremendous downward pressure not only on lodging fundamentals but also on the travel and tourism industry. Owners across all regions continue to spend their time on asset management, capital preservation and liability management.

Nonetheless, there are compensating factors which could provide some cushioning during these tumultuous times. Governments have implemented a range of proactive initiatives and relief packages to support the hospitality and tourism sector. The UK has announced a cut to value-added tax from 20% to 5% on hospitality and tourism that will last for six months, while in Singapore the government has been approaching hoteliers for full buyouts as ‘stay-home-notice’ facilities or as ‘government quarantine’ facilities, which will provide some cashflow respite for owners.

Appetite for hotel investment pauses

Heightened uncertainty has impacted investor appetite for hotels, with asset valuations becoming more challenging. Acquisitions are largely on hold, with the exception of several transactions well underway at the onset of the pandemic or that involved the conversion of the hotel to an alternate use. Activity across the regions is primarily focused on rescue capital, capital stack positions and loan sales, particularly in the Americas. Loan sales have slowly begun, but many of them are performing loans, or lenders simply testing the market.

A longer-term perspective: Shifting traveler patterns and preferences

Travel patterns are expected to shift toward domestic, drive-to-resort destinations and less dense markets where travelers can be in open spaces and avoid large groups of people. Additionally, the rise in remote working and a greater focus on hygiene and personal well-being may move demand in the direction of long-term, private accommodation.