Hospitality REITs (real estate investment trusts) took a beating in the course of the pandemic, due largely to the steep decline in revenue hotels saw in 2020. In fact, last year, hotels logged their lowest occupancy rates ever, and now, as travel picks up across the country, some specific markets are struggling to catch up.
Key hotel markets are still depressed
Over the past few months, there's been an uptick in U.S. travel as pandemic-related restrictions have been lifted and coronavirus vaccines have been widely rolled out. But despite a general increase in hotel bookings fueled primarily by leisure travel, a number of key hotel markets are still stuck in a depression, reports the American Hotel & Lodging Association (AHLA).
Here's where things are looking the worst, with the percentage of revenue per available room down in May 2021 year over year:
Why are some hotel markets so sluggish?
At first glance, it may seem surprising to see these hotel markets so depressed, given that most of these cities can easily be categorized as tourist hubs. But a big reason room revenue is down is due to the fact that these cities all rely heavily on business travel to fuel their hotel markets, which isn't expected to return to pre-pandemic levels until 2023 or 2024, reports the AHLA.
Right now, a lot of companies are still in the process of implementing return-to-work plans at office buildings. Only once that's settled can they start focusing on business travel, and that may not first happen until 2022 at the earliest.
Furthermore, in an age when it's easy enough to log onto a Zoom meeting and connect with people all over the country, it's getting harder to justify business travel in the first place. Throw in the fact that many major business conventions have been canceled until at least next year, and it's easy to see why certain hotel markets aren't picking up the pace to the degree investors might expect them to.
Does this mean that hospitality REITs are doomed? Not at all. In fact, now may actually be a good time to invest in hospitality REITs, because leisure travel is likely to remain strong over the next few years. And that alone could boost a lot of markets.
Furthermore, the above markets are by no means doomed, either. Both New York City and Chicago, for example, are investing in major campaigns designed to revitalize tourism. Investors may just need to be patient and give the above cities time to draw in visitors and await the return of business travelers, but hotel revenue should eventually reach pre-pandemic levels once again.