United States -  United States

Occupancy, ADR, and RevPAR Outlook

The onset of the COVID-19 pandemic in March 2020 had a severe impact on the lodging industry, causing occupancy, ADR, and RevPAR to decline by unprecedented levels. The impact on the national lodging industry peaked mid-April; for the week ending April 11, 2020, STR reported that national RevPAR was 83.6% lower than the level recorded for the same week in 2019. By the conclusion of 2020, occupancy had declined 22 points, with ADR decreasing by roughly $28.00, resulting in a RevPAR loss of 48.0% (rounded). The sharp downturn in travel caused by COVID-19 continued into early 2021, as the months of January and February 2020 were not notably affected by the pandemic.

Since the 2020 onset of the pandemic, hotels that derive a significant component of their demand from the larger group and convention segment have been hit the hardest, followed by properties in markets with a high proportion of business and international travel. For this reason, the major metropolitan areas reported deep RevPAR declines through the first half of 2021. Hotels in locations that depend primarily on automobile traffic have fared better (including drive-to leisure destinations), and the extended-stay category has also outperformed the national average, fueling the illustrated 2021 recovery. Gaining traction in the summer of 2021, group demand showed signs of recovery, albeit at a slower pace. Accordingly, by the end of 2021, nationwide occupancy had rebounded to nearly 58.0%, with ADR reaching roughly $125, representing a RevPAR gain of 58.0% (rounded).

Vaccine boosters are now widely available, and although COVID cases related to the Omicron variant increased in December 2021 and January 2022, the most recent infections are reportedly diminishing in severity. More and more corporations and institutions are beginning to return to office spaces, at least in some capacity. Furthermore, group travel is expected to recover as participants feel increasingly comfortable gathering in larger numbers. Accordingly, hotel owners, operators, and investors generally anticipate the hospitality sector to recover at an accelerating pace, as vaccines, medical therapies, and public confidence support a return of travel. The overall economic upswing is expected to continue through 2022, with national RevPAR anticipated to exceed the level achieved in 2019 by the end of this year.

Hotel Transactions and Values Outlook

The cyclical nature of the hospitality investment market is evident in the sales data. Driven by strong industry fundamentals and a favorable investment environment, transaction volume reached a peak for the prior cycle of $50 billion in 2015. Total sales volume declined in 2016 and 2017 given a slowing economy, fewer hotels coming to market, and a gap that persisted between seller and buyer expectations. With investor sentiments buoyed by a more positive economic outlook in 2018, total transaction volume soared, increasing by 44.0% over 2017 levels; a significant increase in the number of portfolio sales and a greater number of large, high-priced, single-asset deals drove the volume gain. Total transaction volume retracted by 17.0% in 2019, as large portfolio transactions were limited and fewer high-priced, single-asset sales occurred; nevertheless, overall volume in 2019 was strong. 

With the onset of the COVID-19 pandemic in early 2020, the transaction market came to a halt, and pending deals were either re-traded or abandoned. Limited sales activity resumed in the third and fourth quarters of 2020. With the November announcement of a highly effective vaccine and the anticipation of an effective vaccine rollout and resumption in travel to follow, the number of transactions rose significantly in the first quarter of 2021. Transaction volume soared in the second quarter of 2021 driven by entity sales, including the sale of Extended Stay America and its 565 hotels for over $6 billion. This trend continued in the third and fourth quarters of 2021, with volume reaching over $10 and $13 billion, respectively, as sales of larger, higher-priced assets started to pick up. For 2021, total transaction volume exceeded $44 billion, reflecting a robust recovery of the transaction market as investors seek the perceived higher yields and inflation protection provided by hotel assets.

The historical pattern of transaction activity and pricing is recurring as the market moves through the cycle induced by the COVID-19 pandemic. With so many investors looking for the higher yields offered by hotel assets, the pendulum has swung to a seller's market, pushing down cap rates and increasing prices for many properties. While transaction activity has rebounded, demand and pricing are choppy due to variances in property and market performance. With the outlook for hotel performance continuing to improve, hotel investors anticipate strong asset appreciation and high returns as we continue to move through the COVID-19 crisis. Sales of smaller, lower-priced assets, as well as leisure-oriented properties in drive-to destinations, rebounded most quickly. While hotels in many gateway markets continue to be challenged by the slower recovery, the opportunity to acquire assets in these high barrier-to-entry markets continues to attract both U.S. and international investors that focus on the long-term ownership of these assets. Currently, hotel investors anticipate an accelerating recovery of hotel performance throughout 2022 and 2023, although the degree and timeframe of the recovery will vary from asset to asset and from market to market. 

* Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent “big picture” data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.

Change In Value For Market:

Legend
Significant Value Increase: Greater than +10%
Moderate Value Increase: Between +3% and +10%
Stable Values: Between -3% and +3%
Moderate Value Decline: Between -3% and -10%
Significant Value Decline: More than -10%

For more information, please contact:

Rod Clough, MAI
President - Americas (He/Him)
[email protected]
  • +1 214 629-1136 (w)