CBRE Predicts 60 Percent Drop in Hotel RevPAR in Second Quarter Due to Pandemic

Hyatt Place Chicago/Downtown-The Loop

Hyatt completed construction of Hyatt Place Chicago/Downtown-The Loop in 2015. The company announced this week that it will furlough most of its corporate employees due to the impact of the COVID-19 outbreak.

LOS ANGELES — As the impact of the COVID-19 pandemic continues to develop, CBRE Hotels Research has released a revised Viewpoint Hotel 2020 Outlook.

The firm now expects gross domestic product (GDP) growth for the United States to slow to 0.4 percent in 2020, down from its previous estimate of 1.9 percent. CBRE expects a sharp drop in economic activity in the second quarter, stabilization as early as third-quarter 2020 and a recovery underway by the fourth quarter.

“Governments throughout the world are implementing monetary and fiscal stimulus to try to prevent a more long-term global recession,” says Jamie Lane, senior managing economist with CBRE. “Our current expectations are that this stimulus, as well as pent-up demand, will lead to a substantial rebound in economic activity in 2021.”

Decline in lodging demand

The lodging sector’s two main challenges are a contraction in overall economic activity and the need for social distancing that encourages staying at home in small groups and not traveling. As seen in other countries, these monetary and social restrictions will cause a severe decline in the lodging demand in the United States.

CBRE’s updated forecast shows a 37 percent decline in revenue per available room (RevPAR) for the entire year, with a contraction of more than 60 percent in the second quarter. The firm’s earlier estimate was a 0.1 percent decline in RevPAR for the year.

Hotel stays, short-term rentals and cruise trips are fueled by leisure travel and the need for face-to-face business meetings. We are now facing two separate constraints that will ultimately impact the demand for travel: uncertainty about financial future and fear of traveling.

While the effects of previous transmissible viruses, such as SARS, Ebola and H1N1 (Swine Flu), included significant loss of human life, the impact on the paid accommodation industry was not devasting.

COVID-19 is a more dangerous virus, and the World Health Organization (WHO) has designated its spread as a global pandemic. As such, the travel industry is bracing for a huge reduction in business and leisure trips.

Looking ahead

While it may be little solace, U.S. hotels are entering this recession in a much more profitable position than in the past recessions, according to the report. Occupancy levels reached another record high in 2019 and profit margins are 450 basis points greater than the long-run average.

While some operators are expected to completely shut down properties, certain economic situations and recent operational changes may help lessen the financial toll for operators and owners.

The economy is currently in a low-inflation period that should help keep the costs of goods, services and utilities low, and recent changes in food and beverage operations and marketing practices have helped lower fixed operating costs.

“We expect challenging times ahead for the U.S. lodging industry, but believe travel and the services associated with it will once again recover and quickly outpace historical peaks once this pandemic is eradicated,” says Lane.

— Amy Works

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