Hotel markets navigating uncharted waters amid uncertainty

Global Real Estate Perspective, November 2020

The COVID-19 virus is having a profound adverse impact on the hospitality industry, with the ongoing pullback in both leisure and business travel. In typical fashion, the lodging sector observed an uptick in demand during the summer months as leisure travelers escaped their homes to drive-to resort markets or destinations easily accessible by train. Lodging demand trends remain uncertain as summer travel wanes in the northern hemisphere and working-from-home arrangements continue – and as some markets face fresh lockdown restrictions.

While owners across all regions continue to spend their time on asset management, capital preservation and liability management, COVID-19 has encouraged hotel operators to be more creative in attracting guests and diversifying revenue streams. Some hotel groups are honing in on remote workers by offering bedrooms as makeshift daytime offices. Other hoteliers are offering quarantine packages to individuals who need to isolate, have planned a staycation or are working from home indefinitely.

Heightened uncertainty has impacted investor appetite for hotels, with asset valuations becoming more challenging. Activity across the global regions is primarily focused on rescue capital, capital stack positions and loan sales, particularly in the Americas. As yet, distressed activity has been very limited globally as many owners are still benefiting from forbearance periods and government assistance. Nevertheless, a pickup in distress activity is anticipated as we get closer to the end of the year.

A longer-term perspective: Shifting travel patterns encourage hoteliers to be more creative

It is increasingly apparent that hotel demand has reached a plateau and will not see significant growth until a vaccine becomes widely available. Travel patterns will continue to showcase domestic drive-to resort destinations and less dense markets – where travelers can stay in private accommodation, enjoy open spaces and avoid large groups.