Exclusive: What’s Next For The Lodging Industry? – News Nation USA

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Within the commercial real estate industry, the lodging sector was among the most seriously impacted during the first year of the COVID-19 pandemic. But during the course of 2021, the sector began to regain some of its vitality, and many industry leaders believe this positive trend could continue into 2022.
The Latest Data: In the most recent study of the industry — the third-quarter report published by CBRE Group Inc (NYSE:CBRE) in November — demand increased by 37.3% year-over-year while occupancy gained 35.1%, revenue per available room (RevPAR) increased by 89.7% and the average daily rate (ADR) grew by 40.4%.
Compared with the pre-pandemic third quarter of 2019, demand was 8.8% lower, occupancy was down by 11.5% and RevPAR declined by 8.8%, but ADR grew 3.0% due to a robust leisure travel demand during the summer.
Slightly less than 4% of luxury hotel properties remained closed at the end of the third quarter, a significant decline from the 13.9% at the end of the first quarter and far from the 53% peak closure rate in April 2020. The closure rate of all hotel properties was 2.5% at the end of the third quarter, down from 4.4% at the beginning of 2021.
CBRE noted the top 10 performing third-quarter markets were all in the South, with most being resort destinations with average RevPAR growth of 13% compared with the third quarter of 2019, while the 10 weakest markets were all Northern urban destinations with an average RevPAR down by more than 44% relative to 2019.
Supplies (Or The Lack Thereof): On top of the pandemic, the lodging industry is dealing with another crisis: supply chain disruptions. According to a late November survey of the membership of the American Hotel & Lodging Association (AHLA), 86% of respondents said supply chain disruptions were having a moderate or significant impact on their operations, while 52% said the problem became worse over the previous three months and 74% reported supply chain issues are having a negative impact on business revenue.
Among the hotels reporting supply chain disruptions, the greatest shortages were in linens and other soft goods (85%), food and beverage supplies (76%) and day-to-day cleaning and housekeeping supplies (72%). The top items where costs increased due to supplies scarcity were day-to-day cleaning and housekeeping supplies (79%), linens and other soft goods (77%) and food and beverage supplies (77%).
The survey’s respondents were not expecting an immediate resolution of the supply chain disruptions, with 46% predicting the disruptions to last six months to a year and another 36% expecting them to last more than a year.
“Hotels have a complex supply chain that requires regular procurement of a wide range of goods and services each day,” said Chip Rogers, president and CEO of AHLA, in a statement accompanying the survey’s release. “And whether it’s production backups or shipping delays, supply chain disruptions are compounding hotels’ existing problems and increasing operating costs during an already tough time.”
Lending To Lodging: On the financial side of the business, Trepp LLC reported that roughly 3,067 commercial mortgage-backed securities (CMBS) loans totaling more than $84.82 billion in outstanding balance are backed by U.S. hotel properties located across the U.S. The lodging sector is the third-largest property type by outstanding balance, accounting for over 15% of the outstanding mortgage debt within the CMBS sector.
Out of the total lodging CMBS debt, approximately 40% is located in five states — California, Florida, Nevada, Texas and Hawaii — with a combined total of $33.16 billion in CMBS lodging loans. Full-service hotels are the most popular property subtype with roughly $44 billion, followed by limited service at $16.61 billion and extended stay at $6.18 billion.
Trepp’s data also determined that the delinquency rate for loans backed by lodging properties peaked in June 2020 at 24.3%, a 21.89% increase from one year earlier. The delinquency rate has slowly declined since that record high and at last check-in, November was at 9.40%.
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Lending To Lodging: Despite the economic hiccups of the pandemic era, commercial lenders still consider hotel financing to be a lucrative endeavor.
“We do a lot of hotels,” said Jake Clopton, president of the Chicago-based commercial mortgage brokerage Clopton Capital. “Anywhere the local economy is doing well, hospitality construction is going to go.”
Clopton observed that many lenders involved in the lodging space “are very bullish on travel, leisure, and lower price point-type hotels, like limited service, select service and extended stay hotels. For hotels, spas and lodging with convention centers attached, those are a lot tougher and more difficult to get financing because the existing products are struggling. And business travel is not really back to where it was — that’s the elephant in the room and hospitality industries business travel right now.”
Clopton predicted that 2022’s trajectory for hotel financing will be tied to the evolution of the pandemic, although he predicted leisure travel will continue to be the dominant force in the sector.
“People are still going to go on vacation,” he said. “There are enough people that are vaccinated who feel comfortable enough to go, so the destination markets are going to do well.”
Looking Forward: With the new year, industry leaders are varying degrees of optimism on the lodging sector’s near future.
“The fact that you’re seeing single asset sales, portfolio sales, M&A-type transactions and the financing markets are wide open, we ended 2021 in a much better place than where we started the year from a transaction volume perspective,” said Kevin M. Davis, the Americas CEO of the hotels and hospitality division at Jones Lang LaSalle Inc (NYSE:JLL). “Of course, we’re also ending the year with the omicron cloud over the market, which my hope is that in 30 or 60 days it’s yesterday’s news. But right now, it is dominating the headlines.”
James predicted 2022 “will be an even stronger year, and I expect that there will be significantly more investment sales volume. There is a tremendous amount of capital on the sidelines prepared to invest in hospitality. And I expect that you will see a number of large transactions taking place next year.
“As I look at our own pipeline,” he added, “we’re working on several transactions that are in excess of one billion dollars. My expectation is that you’ll see strong sales, strong financing, a significant number of equity recaps and more M&A activity.”
Dennis M. Craven, executive vice president and chief operating officer at Chatham Lodging Trust (NYSE:CLDT), held out hope that business travel to return with a solid degree of vibrancy.
“We had seen a steady improvement in midweek travel patterns through the end of October,” he said. “It fell off into November and December, but you start to see some seasonally adjusted lower travel in those months. But in some of our more corporate markets and urban markets, the business traveler and midweek occupancy have continued to be an outperformer compared to what we thought would happen, which is encouraging.
“As we get out into February and March,” Craven continued, “the question is: are people going to be ready to get back on the road? The leisure traveler was back in early 2021. I think business travel is going to be meaningful and a lot of the convention centers across the country, whether that’s San Antonio, San Diego, Dallas or Boston, are projecting to have a pretty good year in 2022.”
Rachael Rothman, head of hotels research and data analytics at CBRE Group Inc., predicted the pandemic’s economic impact will result in slower growth for the lodging sector.
“On the construction side, if they are being constructed, if they were in the pipeline, shovels in the ground, partway built or well underway at the time the pandemic came, the majority of those projects are being carried to fruition,” she said. “New things are not entering the pipeline, and what that means is that as we come out of this pandemic, we should see less supply growth in hotels. We expect growth to remain muted for several years following the pandemic.”
On the brighter side, Rothman expected the lodging sector to avoid the labor shortage that has bedeviled many industries.
“Government statistics suggest that year-over-year wage increases in the hotel industry are running in the double digits, between 10% and 15%,” she said. “Anecdotally, depending on your market and depending on the demand in that market, you can see figures much higher than that. We’ve heard 20%, for example, in some markets.”
Photo: StockSnap / Pixabay

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