Originally seen HERE.
Earlier this year, Chatham Lodging Trust purchased this 132-room Residence Inn hotel in Austin, Texas. With the state’s economy fully reopened and the hotel’s proximity to The Domain mixed-use development, there are some external factors working to boost occupancy.
By David Vincent, investment products specialist, Cadre
Asset selection in the hospitality investment market will be critical through the remainder of 2021, as particular hotels in select locations could thrive from new sources of growth and revenue, while others may sit on the wrong side of shifting demand.
But investors shouldn’t completely write off the sector. Instead, they should keep their eyes wide open about specific opportunities with solid information that could support a potential increase in valuation.
Travel on the Rise
Stretching their wings after extended COVID-19-related isolation, Americans are now taking to the skies and highways in large numbers. A need to return to normalcy is driving increased demand for travel, boosted by the promise — and delivery — of vaccinations and then-falling infection rates.
Confidence appeared to peak in the early summer, as major airlines announced profitable quarters and plans to hire and purchase planes more aggressively, according to reports by The New York Times. In July, the uptick in travel and lodging brought the national hotel occupancy rate to 71.4 percent — the highest level since summer 2019, according to data from CoStar Group.
Now, amid the uncertainty of the Delta variant, the future of hospitality is once again facing short-term uncertainty. Since school is back in session and families have unpacked from their vacations, a lot is riding on corporate travel.
Changing Business Standards
Throughout the pandemic, one of the most significant influences on hospitality has been employees working from home.
As businesses embraced video conferencing, the impact on hotels was similar to the impact on hybrid office models. Companies that eliminated travel saw immediate savings to their bottom lines. CoStar’s analysis of the sector found that this emerging trend dovetailed well with the wishes of some employees who prefer not to fly for business.
In the long term, the shift to a hybrid or virtual work environment may prove to have a lasting effect on hospitality. Even when more workplaces return to in-office or hybrid work models, it remains uncertain whether conferences or business meetings will ever truly return to pre-COVID levels.
Gateway, Secondary Cities
Gateway cities, such as New York, San Francisco, Chicago and Los Angeles, have endured the greatest impact from the remote employment model, given their reliance on international, business and air travel. With the volume requirements of hotels in these areas, as well as the significant drop in demand for their services, it is unlikely those properties can expect to hit full occupancy in the foreseeable future.
Elsewhere, the impact of virtual meetings and a potential reduction in air travel has led to very different results. Destinations that are relatively affordable and are accessible by car — for example, Savannah, Georgia — are recovering at a much faster rate than gateway cities. By and large, as tourists and travelers choose to drive rather than fly, smaller, more easily accessible cities continue to benefit from increased tourism.
Winners & Losers
In hospitality, new guests arrive and depart every day, meaning success is dependent on investors’ ability to identify resilient assets in growing locations that signal sustainable value.
For now, the safest investment conditions exist in accessible markets and within assets that can easily reach high occupancy levels. Conversely, areas that rely on a high volume of travel, largely by plane, may struggle.
Asset selection will remain critically important going forward. The outlook is mixed. Some properties will certainly grow while others will fall short of desired goals. To this end, investors should consider partnering with experienced managers that understand these changing dynamics and can help identify assets to meet long-term investment goals.
