According to the U.S. Lodging Industry and Market Outlook from Lodging Analytics Research & Consulting (LARC), the pandemic’s impact on the lodging industry will continue to evolve, rather than disappear. By September, LARC expects the negative impact across the U.S. to be tied to gateway markets reliant on international travel.
LARC remains optimistic that the summer leisure season will be strong, while the U.S. should be mostly vaccinated by the end of the third quarter, which will lead to a meaningful acceleration in demand across all segments beginning in the fourth quarter, except for international in-bound arrivals, which will lag for some time. Corporate and group travel demand is expected to return in a meaningful way driven in part by a considerable amount of pent-up demand. Until then, the company expects incremental improvements in travel demand.
The primary risk to LARC’s recovery schedule would be a vaccine-resilient variant that has yet to materialize.
Under that backdrop, the economic forecast from Moody’s Analytics expects U.S. GDP to increase 10.6% in the second quarter and 6.8% in 2021. It is worth noting that the level of fiscal stimulus passed up to now is unprecedented with more stimulus likely to follow in the form of President Biden’s ‘Build Back Better” agenda. As such, in the coming years, LARC expects economic growth, travel demand and hotel asset values to be propped up by trillions in government spending, leading to a much swifter recovery than experienced during past cycles.
Lastly, it is important for lodging industry market participants to remember that most of the economy is holding up, which bodes well for a travel recovery once the pandemic is over. In fact, the sectors that drive most of the industry’s corporate and group lodging demand (information technology, financial activities and professional and business services) in aggregate had a year-over-year increase in output in 2020. This data points to an aggressive snap back in lodging demand once the pandemic is behind us.
Currently, LARC expects U.S. RevPAR to increase by 30.6% in 2021 and increase at a 16.0% compound annual growth rate (CAGR) from 2020 through 2025 (five-year outlook). It also anticipates U.S. hotel property values to increase 1.2% in 2021 and increase at a 6.7% CAGR from 2020 through 2025. It forecast ADR and asset values to recover to 2019 levels by the end of 2022, while RevPAR and EBITDA reach 2019 levels in 2023 and occupancy in 2024.
With regards to 2021, LARC’s outlook for lodging fundamentals has improved considerably related to the acceleration in vaccine distribution from the first two months of the year (data the March forecast was based on). However, it is essentially a pull forward of growth from later years, as it expects 2023 RevPAR to be essentially the same now as it did last quarter.
LARC now expects the various demand segments of the hotel business to recover in the following order: drive-to leisure, fly-to domestic leisure, domestic business travel, large citywide conventions, small in-house group, international business travel, international leisure. Therefore, markets with a greater concentration of hotel demand from the leisure segments and less from international and in-house groups are likely to recover relatively faster in 2021.
Below is a list of the best and worst performing markets based on LARC forecasts.
Top markets for RevPAR growth: Minneapolis; Boston; St. Louis; Chicago; and Norfolk, VA
Bottom markets for RevPAR growth: New Orleans; Anaheim, CA; Orlando, FL; Phoenix and New York
Top markets for RevPAR growth: Denver; Tampa, FL; Phoenix; Las Vegas; and Atlanta
Bottom markets for RevPAR growth: Orlando, FL; St. Louis; Detroit; Boston; and New York
Top markets for value change: Denver; Phoenix; Tampa, FL; Los Angeles; and Las Vegas
Bottom markets for value change: New York; Norfolk, VA; New Orleans; Chicago; and San Francisco