COVID-19 has spread throughout the world, sparing no country. But while all nations are in the same boat, some have better oars to help navigate the crisis. As a result, several hotel companies have fared better than others. One analyst mused, “If you follow vaccination and infection levels, you’ll probably get a good feel for the return of travel.” Across the board, it’s been domestic tourism that has staved off total disaster, while business travel will remain elusive for several more years.

According to commercial real-estate firm Cushman & Wakefield, the European hotel market saw an unprecedented RevPAR decline of 70 per cent last year, with an overall occupancy drop from 63 per cent to 27 per cent. Transactions also fell by 63 per cent over 2019, and profitability fell by a whopping 101 per cent. As a result, Europe was the only region where hotels did not break even. Still, €.10 billion in deals closed in 2020, with the U.K. seeing the highest volume, at €.3 billion, despite a 58-per-cent decline from 2019.

London-based Marc Finney, head of Hotels and Resorts Consulting for Colliers, says the regions that do not rely on international travellers are re-bounding faster than those that do. Cities such as London, for example, where roughly 60 per cent of the overnights come from overseas, are still struggling. “But in other provincial cities, recovery is starting to take hold quite quickly.”

He says occupancies across the U.K. are now in the 60 to 65 per cent range, with a spike on the weekends from domestic travellers. Those properties faring the best are in coastal, countryside areas, while the city centres are quieter. Also, “The more luxurious, the busier they are. Profitability is probably as good as it’s ever been in resort locations,” says Finney, adding that’s likely helped by government measures such as reduced VAT and other taxes.

He says Europe, on the other hand, is a bit further behind, even though it’s been open just as long as the U.K. and COVID-19 rates are a bit lower. “But they don’t have the same vaccination rates, [plus] a lot of hotels in continental Europe are dependent upon international travel and travel between European countries, and that’s not really happening at the moment. It’s the smaller countries that don’t have a big domestic market that are suffering.”

Finney says government assistance, such as salary subsidies of up to 80 per cent, a reduction in sales taxes, as well as supports from banks that have avoided receiverships, have all helped hotels stay afloat. “The other thing, perversely, that’s come out of this crisis is that hoteliers, by necessity, have had to find ways to bring down their break-even point to reduce their operating costs. I suspect, going forward, they’ll find ways to try to hold on to some of those savings, whether by the way they serve breakfast, or a reduction of in-room guest supplies, to be more profitable with lower levels of business.”

Asia Pacific
According to Lodging Econometrics, the Asia-Pacific region construction pipeline, excluding China, ended the first quarter of 2021 at 1,759 projects, down eight per cent. In a June report, Hok Yean Chee, regional president of HVS for Asia Pacific, noted transaction activity had slowed overall, but interest in Australia, New Zealand, China, Japan, South Korea and Taiwan was picking up, and will continue through the end of this year and into next. Transaction volume in Taiwan alone tripled over the last four quarters, from US$0.36 billion to US$1.1 billion with 13 assets traded.

Overall market performance is expected to remain subdued throughout the year, while much of the region gets a handle on the virus and restrictions ease. However, according to JLL, confidence remains high, particularly in Asia, where investment so far has totaled US$3.53 billion, accounting for 94 per cent of overall volume. China, Japan and South Korea saw the most active markets, accounting for 86 per cent of sales. China alone landed US$1.3 billion in transactions, up 54 per cent year on year. Uncharacteristically, Japan had a slower start, down 47 per cent to US$1.1 billion.

A 78-per-cent decline in Gross Operating Profits (GOP), a 62-per-cent drop in occupancy, and a 14-per-cent drop in pipeline projects made 2020 the worst year of operating performance for the country since CBRE began tracking profitability in 1938. Robert Mandelbaum, director of research information services at CBRE Hotels, says things started looking up, however, during the summer of 2020. “Revenues and profits were still way down, but the relative success of rural, remote resort destinations that were low-density and drive-to did relatively well, albeit down from normal levels,” he says.

“And then, unfortunately, that leisure tapered off come the latter part of the year. In 2021, we’re seeing that same bounce-back and very strong levels of leisure travel during the summer — in some places, better than in normal years. The big question is, what’s going to happen come the fall when hotels are more dependent upon business travellers and convention business?”

Mandelbaum says while inbound international travel dried up, domestic travel revved up. On both ends of the scale, lower-end properties not dependent on group or corporate travellers did better, as did very high-end resorts. “The ones that hurt were large convention-oriented hotels in urban areas because of the lack of meetings, business and the perception that densely-populated areas were less safe.”

Mandelbaum says this year and into next will see a slowdown in new development because occupancy levels are down and rates are up. “We see the U.S. lodging industry not returning to pre-COVID-19 levels until 2024 or so,” he says, citing the scarcity of labour and materials.

Latin America/Caribbean
Before COVID-19 pushed them off-course, Latin America’s tourism industry was growing at 10 per cent annually for five years, according to the Americas Society/Council of the Americas (AS/COA). The organization, which promotes free trade and open markets throughout the Americas, reports that, by 2019, the Caribbean derived an annual average of 11 per cent of GDP from tourism, and Latin America four per cent. Then came 2020 and US$230 billion in losses to Latin America’s tourism industry, according to the World Travel and Tourism Council. Mexico, which dominates the sector, lost US$129 billion, and Brazil, US$51 billion.

The Economic Commission for Latin America and the Caribbean (ECLAC) raised its average growth estimate in 2021 to 5.2 per cent, up from the contraction of 6.8 per cent in 2020. But a report from this July warned this better outlook would not ensure sustained growth; 2022, in fact, is projected to see a slowdown.

But, like all regions, with mitigation efforts in place, optimism prevails. “The brands are taking perhaps a bit of a longer view,” says Fernando Garcia-Chacon, executive vice-president, CBRE Hotels Advisory for Latin America and Caribbean. “They’re saying, yes, it’s been tragic but everybody feels there’s a bright future ahead. So, from a development standpoint, they’re moving ahead, they’re looking for deals. Hotel companies do not put up capital as would a hotel owner or developer, but they’re certainly investing and moving forward.”

Middle East and Africa
Long before the pandemic, parts of the Middle East had been battling political unrest and civil war, and the Coronavirus only added to its woes. It is, of course, a vast region with vastly different economies — and responses to the virus. Those that imposed immediate protective measures, such as Jordan, Tunisia and Morocco, fared better than those that did not, including Iran, Iraq and the UAE. Naturally, high case numbers crippled tourism and new builds.

According to Lodging Econometrics’ Q1’21 Construction Pipeline Trend Report, hotel construction dropped to 534 projects/153,225 rooms, down 12 per cent by projects and 11 per cent by rooms year-over-year, the seventh-consecutive drop. And while the Middle East opened only 10 new hotels in the period, LE is forecasting 78 hotels will open by the end of this year. That will be bolstered by brand conversion and renovation projects, which have risen to a record high. Saudi Arabia leads the charge with 185 projects, the UAE with 154 and Egypt with 61. Hilton, Accor and Marriott represent nearly half of all pipeline projects.

In Africa, according to the Top Hotel Projects construction database, just 92 hotels are set for completion across the continent this year. Egypt is the most active, with 51 ongoing projects, followed by Morocco with 38 and Nigeria with 28. Leading brands include Hilton and Radisson, which plans to expand rapidly.

“Radisson has a big footprint here, and this will be a record year for them in terms of development,” says Rishabh Thapar, director, HVS Africa. “[However], Africa is very dependent on international travellers — 50 per cent of our tourism revenue comes from abroad. Because of this, and the fact that the vaccination drive has been really slow, we haven’t seen the recovery in 2021.”

Thapar says some governments, particularly Morocco and South Africa, have helped with supports, including moratoriums on hotel loans. Also, many hotels have learned to operate on lower fixed costs which means, he says, “Once they get out of the pandemic, the profitability for these hotels will likely be higher.”

South Asia
India was on a growth path when COVID-19 threw up a speed bump, says Mandeep S. Lamba, HVS president for South Asia. “India-wide, occupancy in 2020 was in the range of 33 to 36 per cent, reflecting a decline of 31 to 33 percentage points compared to the previous year. In the wake of falling demand and occupancy, hotel tariffs were reduced significantly to attract business, thus pulling down RevPAR to a dismal low of US$22 to US$24 in 2020, a decline of 55 to 57 per cent from the previous year.”

On the upside, Lamba says the pandemic has accelerated certain transformations, which will help the sector’s growth. “Technology adoption was fast-tracked because it became the key enabler during the COVID-19 era, as keyless check-in and digital menus that were once considered luxuries suddenly became necessities for hotels to remain relevant. As occupancy reached an all-time low, hoteliers re-adjusted strategies and were forced to find innovative ways to utilize their assets, in the process opening newer revenue streams. From food delivery, DIY signature meals, laundry to housekeeping and more, hoteliers have re-imagined ‘hospitality’ by extending their services to guests in the comfort of their offices and homes. They also introduced long-stay, staycation,and workcation packages to attract domestic leisure tourists once the restrictions were eased.”

As a result, 2021 started on a positive note, only to be dashed by a second wave that forced new restrictions and lockdowns in various states, resulting in tepid demand in the past couple of months. “Nonetheless, unlike the previous year, when most hotels were completely shut or relied only on quarantine business, this time, hoteliers have been proactively focusing on alternative customer segments and ancillary revenue streams to survive these difficult times. Some hotels, largely in commercial cities, [partnered] with hospitals to provide isolation and quarantine facilities, which has impacted the average rates in the market,” says Lamba.

Lamba is confident that as vaccinations increase and cases decrease, the sector will re-bound — “provided the [next] wave is not as disruptive as the previous one.”

Written by Robyn Roberts


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