LARC Updates U.S. Industry Outlook

NATIONAL REPORT—Lodging Analytics Research and Consulting (LARC) has updated its “U.S. Lodging Industry Outlook.” Due to the uncertainty of when the COVID-19 pandemic will abate, the company presented three different forecasts depending on when business will get back to normal.

The outlook uses Moody’s Analytics’ April 10 update as the baseline for economic assumptions, and it also built out hypotheses regarding a deeper downturn and a shallower one. Under the deeper-downturn scenario, the virus abates later in the year and the economy opens up more gradually as the population is reluctant to revert back to day-to-day life quickly. In the shallower decline, the virus abates by May and the economy reopens aggressively with widely available antibody and COVID-19 testing. While the economic assumptions vary in the near term, they all converge in the out-years.

Key takeaways from the outlook include the following:

  • The base case 2020 RevPAR outlook calls for a 32% decline, while LARC’s range is extremely wide from a 26% drop to a 57% decrease.
  • Although most of the 2020 RevPAR decline is expected to be in the form of occupancy, ADR will be negatively impacted as well.
  • The base case generates an almost 80% decline in hotel EBITDA in 2020 and in the deep downturn scenario, hotel EBITDA turns negative across the industry.
  • A strong snap-back in EBITDA is forecast across all three scenarios as LARC expects EBITDA to recover to 2019 levels within five years.
  • In a fully transparent market where transaction volumes provided ample clarity (a situation it does not expect in 2020), LARC estimates that hotel values would drop by nearly 30% in 2020 in its base case and close to 50% in its deep-downturn scenario. In all scenarios, the company expects values to recover to 2019 levels within about five years.