Hospitality Market Update

by | 04 March 2021

  • Hotel occupancies have improved from their low point in April but are nowhere near pre-pandemic levels.
  • Historically, occupancies are generally higher further up the luxury scale, but the opposite trend occurred in 2020. This trend is holding in 2021 so far.
  • The top 25 hotel markets faced much harsher RevPAR (revenue per available room) declines than markets in the rest of the country.
  • Major tourist (domestic and international), business, and leisure hubs faced the largest declines of all.
  • CMBS delinquency rates are the highest in hotel, and some of the hardest-hit markets have above-average delinquencies. Investors will find opportunities.

The hotel market was turned upside down in 2020. Occupancies that averaged 62.2% in February had plummeted to 24.5% by April, per STR. That marked the nadir of the U.S. hotel market, and occupancies topped 48% from August through October. The recovery has not been smooth: as the year wound down, occupancies fell again. Occupancies across the U.S. were nearly 30 percentage points lower in December 2020 than in December 2019, and RevPAR declined to less than half of the total one year prior.

But this occupancy adjustment wasn’t evenly felt across hotel classes. Generally, occupancies are higher in higher-class hotel rooms, and the luxury hotel market ended 2019 with 62.1% occupancy. In 2020, luxury occupancies were just 25.5%, while economy hotels ended 2020 with occupancies of 43%, down just 5.8 percentage points from the year before. There was a clear inverse relationship between occupancy and luxury properties in 2020. This remains true in 2021, however, through mid-February, average room rates have shown year-over-year gains in the luxury category. All other segments remain down on an annual basis.

Markets mattered, too. At the end of 2020, the top 25 markets posted RevPAR of just over one-third of their year-end 2019 figures. New York and Oahu Island had the largest RevPAR declines in the country, both topping 80%, and San Francisco was just under an 80% decline. Anaheim, Boston, and Chicago all suffered RevPAR declines of above 70%. On the other end, Norfolk/Virginia Beach posted a minor 5.7-percentage-point decline in occupancies year-over-year. Along with adjustments to room rates, Norfolk’s RevPAR came in at just 22.9% lower than 2019, the best performance in the nation. Tampa was off 39.9%, Phoenix 40.5%, and Atlanta 41%.

The hotel space is ripe for opportunity. Travel deals are widely available, and as the vaccine rollout continues, there is a general expectation of improved travel throughout 2021, boosting occupancies and, in turn, RevPAR. Some of the hardest-hit markets were those relying heavily on various forms of travel (business, leisure, international tourism), which also have some of the highest CMBS delinquency rates. Value-add and opportunistic investors are positioned to capitalize on the hotel vertical.