Hotel markets eager to move forward

Global Real Estate Perspective, February 2021

The global lodging industry experienced a transformational year in 2020. Hotel operators swiftly adopted technological advancements to deliver contactless lodging experiences and hotel investors responded to shifts in hotel demand and leisure traveler preferences by adjusting their investment strategies to acquire assets in less dense markets and resorts. Additionally, Airbnb finally announced its highly anticipated IPO. The impact of these events on the hotel and hospitality industry will endure for years to come and in many ways will redefine the travel experience of tomorrow.

As progress is made around vaccine distribution, hotel lodging performance is expected to be positively impacted with a slow and gradual rise in hotel occupancy. At the moment, lodging demand’s recovery path remains hazy given the long-term working-from-home trends and the increasing blurring of the lines of business and leisure travel. Hotel owners will need to rethink the lodging experience to capture and retain leisure travelers.

With record levels of dry powder on hand, private equity groups and high-net-worth individuals (HNWI) are expected to drive the bulk of liquidity in 2021. While the level of distress across the lodging industry is relatively limited as banks and goverments have been generally accommodative, pressure is building as owners continue to be weighed down by high carrying costs. This dynamic will result in the sale of hotel assets situated in typically tightly held markets.

Future trends: Hospitality demand to recover in stages
  • Short-term: Lodging demand is anticipated to remain pressured until a vaccine becomes widely available. Leisure demand is expected to recover first, with a preference for 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 will support the recovery of group travel.