By Samuel Sahn
The hotel industry has undoubtedly been one of the hardest-hit sectors during the COVID-19 pandemic, stretching hotel owners and operators to new levels. There have been numerous factors impacting the industry in the last year and a half, such as travel restrictions — for leisure and business transient travel alike — and work-from-home mandates. In August, however, the U.S.-Canadian border re-opened and the number of travellers to Canada doubled, foreshadowing what’s to come for the industry as the international border also re-opened in early September.
After a long wait, the industry is on the road to a slow recovery that is expected to reach prior peak levels in 2023, and for leaders and investors in this space, it’s important to understand how hotels fared and how they can continue to hold their value.
Hotels have adopted a new operating model, for now
When compared to previous years, the 2021 operating model for hotels is unrecognizable. To help with the fact that demand evaporated overnight, hotels have adopted a zero-based budgeting model, which scales back on amenities, housekeeping, streamlining food-and-beverage options and employing less people as way to maximize profitability.
With a decrease in operating costs, the expectation is that there will be higher margins next cycle compared to the last, as some of the elements adopted by the new model are carried through into the next cycle, accompanied by an increase in guest traffic.
Full Recovery by 2023
Based on current forecasts, hotel RevPAR (Revenue Per Available Room) is expected to reach a full recovery to pre-pandemic peak levels by 2023. While this may sound far away, it is in fact, one to two years sooner than what was initially expected at the onset of the pandemic.
Globally, there has already been a strong recovery in leisure-travel demand, leading to recovery in hotel profitability. China was the first to experience resumption in leisure travel, followed by the U.S. and now Europe, but all remain impacted and dependent upon government restrictions.
Although the return to the office is taking much longer than initially anticipated, resulting in an elongated recovery for business transient travel, demand has been improving and showing increases week-over-week. Looking into next year, group business travel is expected to improve with rates at, or above, 2019 levels and room bookings are expected to increase.
Industry leaders and investors must be patient
Although a full recovery will not be immediate, there is certainly hope for the industry as the pandemic continues to run its course. International travel is going to be the biggest beneficiary of the recent relaxation in travel restrictions, and this recovery will ultimately benefit the 24-hour gateway markets that have been heavily impacted by the pandemic. Hotels will continue to adapt to hold their value as external factors begin to work in their favour, and so industry leaders and investors will need to be patient. As travel restrictions ease, there is no denying that demand for hospitality will increase, ultimately resulting in higher profits and a steady recovery for the hotel industry.
Samuel Sahn is portfolio manager, Public Real Estate Investments at Hazelview Investments