Why Investing in Hotels Is a Good Idea Right Now
It’s fair to say 2020 was a delightfully terrible year for hotels. Last year, hotel occupancy hit record lows, and for the first time the industry surpassed the 1 billion unsold benchmark.
Fortunately, hotel bookings increased last summer, mainly due to vacation travel. But then the Delta variant struck and again endangered the hotels.
Even so, hotels may not be such a bad choice for real estate investors right now. Here’s why.
Vacation demand could rise
Many people stayed close to their homes during the 2020 Christmas season due to rampant COVID-19 outbreaks and lack of vaccine availability. And that only added to the problems of the hotels.
But this year it looks different. AAA predicts Thanksgiving travel this year will largely return to pre-pandemic levels, with 53.4 million Americans expected to leave their homes and go on vacation. That’s 13% more than in 2020 – and a level that’s only 5% below what the AAA reported for 2019. And the more people make travel plans, the more bookings hotels are likely to see.
A recent Deloitte survey shows similar good news in the vacation travel sector. An estimated 40% of Americans will travel on vacation, and one in three will board a flight or stay in paid accommodation.
Why the upward trend? In many parts of the country, COVID-19 cases have now decreased during the first major spike in delta variants from summer. And COVID-19 vaccines, which are now on the table for kids ages five to 11, could boost Christmas trips, which is good for hotels too.
Investors should continue to exercise caution
The 2021 holiday season could be a blessing for hotels, especially after a miserable 2020 season. But even if it may look to hotels in some respects, the industry on the whole is far from overjoyed.
It can be assumed that vacation travel will pick up or remain stable over the course of 2022. But business travel, a big driver of hotel sales, may not return to pre-pandemic levels for years.
At this point, many offices are yet to be fully reopened as the pandemic unfolds. And if employees don’t even get to the office, we can bet it will be a while before companies get their employees on airplanes and gather them for conferences and meetings in hotels.
In addition, short-term rental properties remain a major threat to hotels in the wake of the pandemic. Today, many travelers choose private rooms as opposed to hotels where amenities and common areas are shared. And that can go on until 2022, regardless of how the COVID-19 cases develop.
Hence, those looking to invest in hotels should do so with caution. And it could be worthwhile to stick with hospitality REITs with more leisure properties than commercial properties in their portfolio.