What Will Be of the Hospitality Real Estate Market in 2021?

To say the pandemic year was turbulent for the travel and tourism industry would be an understatement. Few other industries have been as affected by the government-imposed restrictions as this one, and few have managed to recover as quickly as they did before between those periods.

At the center of everything tourism and travel related is the hospitality sector, which also regularly has some pretty attractive property listings. However, these times are far from regular, so many investors are wondering if this is a good time to start investing in hotel real estate.

What makes a hotel profitable?

In contrast to the profit from most other types of property (namely the rent received), which is contractually regulated over the long term, hotel revenues can be very unpredictable. The advantage is that supply and demand are constantly adjusting, which means that hotel owners can change prices on a daily or even hourly basis for optimal profit.

The downside is that without a long-term contract there are no guarantees. While a tenant in an apartment or a business agrees to an annual rental price, a guest in a hotel usually agrees not to stay more than a few nights. To really understand a hotel’s profitability, numbers like total revenue, occupancy, number of rooms, daily expenses, and other numbers come into play. Add to this the need to calculate these digits for high and low guessing during different times of the year and you get a rather confusing formula.

Pandemic problems

2020 and 2021 (so far) were both extreme for hotels around the world. There were times when they had to be forcibly closed, but also times with very little utilization – mainly due to the population’s fear of the virus. On the other hand, there were times when the demand was very high, especially between waves, when the holidaymakers were euphoric.

Source: https://unsplash.com/photos/01dg_DnJ5QE

Of course, the more upscale hotels were more affected by the turbulence, while the selected service hotels fared better. Skyline Investments, a Canada-based hotel and resort owner and operator, is a great example of this. The company was founded in Ontario in 1998 and currently owns luxury hotels and resorts in the US and Canada, as well as a portfolio of selected service hotels. It was even named one of the best run companies by Deloitte two years in a row – undoubtedly a player in the hotel game.

“If there is one thing I can say about the last 14 months, it is that they have been very inconsistent,” commented Blake Lyon, CEO and Director of Skyline Investments. “I have years of experience managing hotel and resort assets, and what we’ve seen in the last year or so is unprecedented. Our full-service hotels are large and cater to the middle and upper classes. So you can imagine what that volatility did to these hotels, but they are now recovering. Our drive-to resorts survived the pandemic reasonably well, and our selected service hotels managed to get through better than the full service and are almost back to the historical occupancy level.

Skyline is not alone here. Brandon Boyer, the general manager of one of the hotels of the prestigious Atrium Hospitality, spoke to us from the lobby of his hotel in Jefferson City, Missouri. Atrium currently owns and operates 84 hotels in 29 states, including some well-known brands such as Marriott, Ramada, Westin, Hilton, Holiday Inn and others.

Brandon’s hotel is almost back to business today, but his face still looked worried. “It was devastating, we just got a huge hit and there is nothing like it,” he admitted. When we asked him about the capacity percentages in the first month of COVID-19, he surprised us and replied, “It went down to single digits overnight.”

Back to the Future

With these numbers, investors have shied away from the hospitality property sector. However, this can be beneficial as the prices become more attractive. On the other hand, if there is no certainty in sight for this industry, there is no real reason for investors to look in that direction again.

2021 is showing signs of a return to normal, but that will largely depend on the spread and control of the pandemic – which also varies across regions and nations. It’s not just about the virus, because legislative measures to compensate hotel owners are also an important factor. Lyon added: “We have been fortunate to have received subsidies and compensation from the US and Canadian governments, but unfortunately that is not the case in other countries. Industry in Canada and the United States is coming back fast and these helpful subsidies are now on the wane. 2022 looks like it will be very busy.

Photo by Drew Beamer on Unsplash