Lodging recovery linked to vaccination rates

Global Real Estate Perspective, August 2021

A renewed sense of optimism surrounding the lodging industry’s recovery is largely being driven by the successful inoculation of people around the world. The increasing proportion of vaccinated individuals has resulted in countries loosening travel restrictions coupled with a much-needed boost in domestic traveler confidence, particularly in the Americas and China. Reflecting outbreaks of new COVID variants, EMEA’s recovery has slowed in recent months.

Despite the mixed progress among the regions, leisure markets continue to outperform. Across the Americas, San Juan, Miami and Tampa have achieved recent occupancy levels ranging from 60% to 70%, the highest among all the top markets. In Asia Pacific, the recovery is varied given recent COVID-19 outbreaks, with China leading as it benefits from strong domestic travel. A more pronounced improvement in performance is anticipated when the pace of business and group travel accelerates, which is expected to remain under pressure in 2021 given the rise of virtual and hybrid meetings.

Hotel investors continue to respond to shifts in hotel demand and leisure traveler preferences by adjusting their investment strategies to acquire assets in less dense and resort markets. Q2 saw five luxury resort transactions at close to US$1.0 million+ per room. Hotels situated in urban markets accounted for 27% of hotel transaction activity, suggesting that investors with a long-term investment horizon are still open to acquiring strong branded assets situated in city markets.

Future trends: Domestic travel first to recover
  • Remainder of 2021: The lodging industry’s tentative recovery will continue to depend on virus control and vaccination levels, leading to a multi-speed recovery across countries. Additionally, countries with improving consumer sentiment and large domestic leisure demand are likely to see improving lodging performance. China and the U.S. are anticipated to outperform.
  • Long-term: The demand recovery will become more pronounced as corporate and group travel begins to pick up. These segments will observe more positive momentum as companies ease travel policy restrictions and more schools and universities reopen for in-person learning. The make-up of corporate and group demand is expected to evolve, with business travelers reducing the number of trips they take but increasing their length of stay, while group meetings will be more hybrid in nature.