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Renewed optimism for lodging sector’s recovery

Global Real Estate Perspective, November 2020

Following an extremely grim year, the global lodging industry is slowly starting to see performance move in a positive direction. A renewed sense of optimism surrounding the industry’s recovery is largely being driven by successful vaccination schedules. The increasing proportion of inoculated individuals has resulted in countries and markets loosening travel restrictions coupled with a much-needed boost in traveler confidence, particularly in the United States.

Drive-to, leisure markets such as Miami and Tampa in the U.S. continue to outperform. The Maldives and Sochi are also finding some upside, spurred by current leisure traveler lodging preferences focused on closer-to-home resort destinations, less crowded markets and larger lodging offerings.

Overall hotel investment continued to be suppressed in Q1, with the level of distress more limited than originally expected, as banks and governments globally have been generally accommodative. The plethora of capital available in the market for acquisitions is also making the bidding process more competitive for the higher-quality assets that are available for sale. Private equity groups and developers drove the bulk of liquidity in the quarter. Hotels situated in urban markets accounted for 54% of hotel transaction activity, suggesting that investors with a long-term investment horizon are open to acquiring strong-branded assets situated in city markets.

Future trends: Hospitality recovery to be led by leisure travel
  • Short-term: Lodging demand’s recovery is uneven on a country-by-country level and being directly influenced by the progress of vaccinations. Leisure demand is leading the recovery in the U.S., which is benefitting from a successful inoculation program and spring break vacations. Market preference continues to be nearby, drive-to destinations and less dense markets where travelers can stay in private accommodation, enjoy open spaces and avoid large groups.
  • Long-term: The demand recovery will become more pronounced as corporate and group travel begin to pick up. The make-up of corporate demand is expected to differ from the past, with business travelers reducing the number of trips they take but increasing their length of stay. The expansion of hybrid conferences and ‘meeting bubbles’ will support the recovery of group travel.