Last year, the coronavirus pandemic did a number on hotels. In 2020, hotel occupancy rates plunged to historic lows at 44%, compared to 66% in 2019.
But things have been looking up this summer. In fact, in June, the U.S. hotel industry recorded its highest monthly occupancy rates and revenue per available room since October 2019, according to hotel analytics firm STR. Specifically, occupancy in June sat at 66.1%, which is on par with pre-pandemic numbers. And revenue per available room reached $85.31.
All of this is great news for real estate investors with hospitality real estate investment trusts (REITs) in their portfolios. Hotel REITs took a beating in 2020, and investors are hoping that the current summer travel boom will help them make up for lost revenue. Unfortunately, the delta variant could put a serious damper on those plans.
One step forward, one step backward
The summer of 2021, at least so far, truly has been the summer of travel. Hotel bookings are up, airlines are seeing a surge in demand, and short-term rental occupancy rates are reaching record highs.
But the delta variant could easily threaten all of that progress and create a scenario in which Americans feel compelled to spend the latter part of 2021 close to home. The variant has caused a huge spike in COVID-19 cases across the country, but the situation has gotten so bad that the Centers for Disease Control (CDC) was forced to go back to recommending that even vaccinated individuals mask up in public.
If the outbreak worsens, more travel restrictions may be imposed, including forcing people who fly from one state to another to quarantine upon arrival. And that, in turn, could be a major impediment to taking trips.
Furthermore, some cities or states may seek to impose restrictions that mimic those implemented early on in the pandemic if the outbreak worsens. New York City, for example, could enforce capacity limits on restaurants and order theaters to shutter again, which would drive tourists away from the city -- and away from the hotels that desperately need them to book rooms.
Let's also remember that coronavirus-related fears might keep travelers out of hotels. Last summer, many people opted to book stays at private vacation homes to avoid interacting with fellow guests in common areas such as lobbies and elevators.
In the near term, more travelers may seek to go a similar route and steer clear of hotels until the outbreak subsides. This trend may be especially prevalent among families with children who are too young to be eligible for a COVID-19 vaccine at present.
Another thing to keep in mind is that the delta variant is already forcing some companies to delay their office reopening plans. That means business travel will likely be put on pause even longer, thereby depriving hotels of a key source of revenue.
The Millionacres bottom line
All told, the delta-variant wave could have a far-reaching economic impact that trickles down to a host of industries. And unfortunately, hotels could get battered in its wake.
Real estate investors will have to hope that the lure of hotels continues to hold strong even at a time when the outbreak seems to be taking a turn in the wrong direction. At this point, the one thing hotels have going for them is that Americans have once again caught the travel bug and may not be so quick to shed it. But whether vacation plans continue at their current momentum will hinge largely on what the delta variant ultimately has in store.