Hotels Typically Recover Faster Than Other Real Estate Classes

Hotel News Now – Comparing hotel performance and transaction pace to that of other commercial real estate asset classes can help paint a more comprehensive picture of recovery as the U.S. winds its way through the COVID-19 pandemic.

In a presentation titled “Hotels vs. the Rest of CRE,” CoStar’s National Director of Hospitality Analytics Jan Freitag and CoStar’s Director of Hospitality Analytics, Northeast, Anne Purcell shared data points illuminating how hotels compare to other asset classes and what that means for rebound time.

1. The Great Recession: Hotels Fell Fastest, Rebounded First

In 2008, hotels felt the impact of The Great Recession fastest, experiencing drops in revenue per available room that were steeper than the declines in rent payments for other asset classes, according to CoStar data presented at the 2021 Hotel Data Conference.

But hotels, which due to their ability to re-price every night, rebounded faster. Data from CoStar and STR, CoStar’s data analytics firm, show it took the U.S. hotel sector seven quarters to shift into positive RevPAR growth, while it took office, industrial and retail sectors 10, 11 and 15 quarters to shift into positive rent growth, respectively.

2. Hotel Occupancy Recovery Underway

The hotel industry experienced a sharp dive in performance as soon as the pandemic hit, forcing hotels to close. “Vacancy in the hotel sector increased by 79%,” Freitag said.

But occupancy recovery is underway, according to the data. “Hotels were hit very hard in 2008-2010, but the rebound is just as sharp, because the hotel industry sells on a daily basis,” he said.

Among the asset classes, industrial and multifamily sectors show strong price increases, leading the pack, according to the data.

3. Transaction Volume Reflects Consumer Behavior

From 2015 to the second quarter of 2021, CoStar data shows the hotel and multifamily sectors have been quickest to recover transaction volume, though all asset classes took a dip, Purcell said.

Investment interest is increasing for brick-and-mortar retail space as consumers are spending the money they saved during 2020. “People are over their hesitancy now, so we have seen transaction volume build up,” she said.

That’s also the case for increases in industrial-sector transactions. “Companies need a place to store all the things people are buying, so there’s a real supply-demand dynamic here,” Purcell said. “Spaces up for sale are taken up very quickly.”

While hotel transaction activity represents the smallest piece of overall transactions volume, it is “picking up,” Purcell said.

“In the second quarter of 2021, $13 billion in hotel transactions have taken place — the highest ever and twice the amount of transactions as happened in 2019,” she said. “There is a lot of investor interest in our space.”

4. More Distressed Hotels on the Way?

Historical data shows more distressed hotel sales may be on the way.

“During the 2009 financial crisis, the hotels sold in distress took awhile,” Purcell said. “Distress picked up later, in 2011 and 2012. In the first quarter of this year alone, 17.5% of hotel transactions were distressed transactions. There are a lot fewer hotels in distress now than in 2009, but this has been such a long stretch of distress during the pandemic, especially for these urban markets.”