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Delta variant slows lodging recovery

Global Real Estate Perspective, November 2021

Following strong demand growth in Q2 resulting from increasing vaccination rates, the lodging industry’s recovery has slowed given the prevalence of the Delta variant. The recovery continues to favor leisure and resort destinations, with urban markets gradually seeing green shoots in performance.

In the U.S., the rally in demand faltered due to the Delta variant inhibiting travel, with RevPAR levels in YTD August 2021 equaling 77% of 2019 levels. In Europe, hotel occupancy is improving across the major European cities following the lifting of restrictions, but they remain in the 20%-36% range. Border closures and travel restrictions in Asia Pacific continued to impact the hotels market in the third quarter, although China is a bright spot, fueled by domestic demand.

With plenty of capital to deploy, private equity groups continued to drive liquidity in the third quarter, representing nearly 55% of total hotel investment volumes. Hotel investors continue to respond to shifts in hotel demand by adjusting their investment strategies to acquire luxury assets or assets situated in resort markets. Hotels situated in urban markets accounted for 44% of hotel transaction activity in Q3, suggesting that hotel investors with a long-term investment horizon are open to acquiring assets with strong brands situated in city markets.

Future trends: Markets open to international travel set to lead demand recovery
  • Outlook for 2022: The lodging industry’s recovery will continue to be a tale of two parts, with leisure and resort markets outperforming and urban, denser markets observing more suppressed demand levels. Virus containment measures and vaccination levels are set to influence the pace of recovery through the year, and countries with more lax international travel restrictions will experience a greater boost in demand levels, with China and the U.S. predicted to lead the way.
  • Long-term: The demand recovery will become more pronounced as corporate and group travel begins to pick up. These segments will see more positive momentum as companies ease travel policy restrictions and the rate of vaccination increases. Group demand is expected to rebound ahead of corporate transient demand, with business travelers anticipated to be more intentional with travel, while adding a leisure component to their journey.