Given that 2020 was hotels' worst year on record from an occupancy and revenue standpoint, many properties are operating in recovery mode despite the recent summer travel surge. In fact, real estate investors may finally be breathing a sigh of relief that the worst is over for hotels.
Or is it? Unfortunately, things could get worse as the weather gets colder. And hotel REITs, or real estate investment trusts, could be in for a world of hurt.
Could things actually get worse for hotels?
At one point this past spring, it looked like hotels would get to enjoy a much-needed revival. Bookings picked up for the summer as coronavirus vaccines helped travelers feel more secure in making plans. And an improving economy and influx of stimulus checks gave more travelers the spending power to go out and spring for hotels.
But then the delta variant hit, and from there, things went rapidly downhill on the travel front. Conferences and trade shows were scrapped. Family plans were postponed. And things could get even worse as the weather takes a turn for the frigid.
It's not that domestic travel is universally sluggish during the winter. If anything, the holidays are a popular time for travel. But with cold weather could come another massive surge of COVID-19 cases, which could result in restrictions and all-out panic.
More so than anything else, though, a lack of business travel could really hurt hotels during the latter part of 2021. Many companies were forced to delay their office reopening plans in response to the delta variant. And if workers aren't coming into the office, we can bet they won't be boarding planes and booking hotel stays anytime soon.
But without business travel, hotels can't thrive. And now, hotel revenue is expected to drop more than $59 billion this year compared to 2019, according to the American Hotel & Lodging Association. That's an even greater drop than 2020, when the industry lost $49 billion.
In fact, all told, the summer vacation surge was not strong enough to offset the damage caused by stalled business travel. Data firm STR projects that only 1 billion U.S. hotel rooms will be booked this year. That may seem like a large number, but it's a big decline from the 1.3 billion rooms booked in 2019. That said, it would be an improvement over the 829 million rooms booked in 2020.
But booking and revenue curves don't always correlate. And so even if bookings do pick up this year compared to last year, a steeper decline in revenue could ultimately batter hotel REITs.
When will business travel come back?
At some point, business travel is apt to pick back up, and trade shows and conventions should enjoy their own revival. But we may be a good year or two away from either of those things happening. Until then, investors will have to hope that hotels manage to hang on.
One factor that could fuel a holiday travel surge is an expansion of COVID-19 vaccines. Now that booster shots are in the works, people may be more comfortable traveling during the winter months. And once a vaccine is approved for children under the age of 12, which should be happening very soon, it gives families more travel options.
But ultimately, hotels are unlikely to recover from the blow of the pandemic until business travel resumes at full speed -- and that's something real estate investors will have to come to terms with.