The hotel sector was told to prepare for distress, as Europe continued to struggle during the pandemic.
The latest forecasts from STR suggested that demand in Europe would start to come back in June.
Robin Rossmann, managing director, STR, said: “We are starting to appreciate the reality that hundreds of thousands of hotels are going to be in distress. The good news is that hotels don’t go away as a result of occupancies are declining, they’re pretty difficult to repurpose.
“When you get to the level when hotels can be profitable, it makes sense that they keep existing, even if they can’t pay their leases and their debt. There will be discussions with lessors and landlords and asking how the hotel has been performing in comparison to its competitors. Once you understand that, you can draw conclusions around its recovery profile. It also tells you about the quality of the team running the hotel.
“Everyone recognises that something incredible has happened and there isn’t a single hotel or portfolio that has escaped unscathed so there hasn’t been that much pressure on evaluations on performance of teams running hotels, but that time will come, whether it’s the end of this year or into next. But these leases and debt will have to be restructured. Some hotels will have to reposition when their traditional sources of demand change.”
STR reported that, as at 30th April, 76% of hotels were closed in Europe and 17% in North America. The rolling 28 days occupancy to 16 May illustrated there was some recovery in China and in the US in the Central South and West parts, but not in Europe. China was at 43.5%, with the US at 32.4% and Europe at 11.7%. Rossmann said: “Everyone had a sharp decline in those two weeks after the cases of the virus rapidly increased, then over the last seven weeks, Europe flatlined and the US started to recover. China and the US are looking similar - the US didn’t drop as far and didn’t fall as far as China.
“One of the reasons that Europe has struggled more is that it has seen stricter shutdowns than the US. It is more exposed and we should be more careful. Has the recovery in Europe started? Not yet. The occupancy in hotels open in April was ranging between horrible and terrible and worse. But there is light at the end of the tunnel, I think demand will come back in June, with domestic travel.”
In the US, STR has forecast a 57.5% drop in revpar for 2020, with ADR down 21.6% and occupancy down 45.8%. Supply was forecast to drop by 5.2%, against a 2% increase in 2019 - but would have risen by 1.4% had there been no temporary hotel closures. In 2021, there was a 7.7% increase in supply forecast, with revpar up 48%, ADR up 1.7% and occupancy up 45.5%.
For the weekly rolling seven days to 6th May no European cities showed occupancy growth. As for business on the books, there were very subdued levels of demand, 10% rooms sold or less for the next 90 days, but booking cancellations had slowed - because, Rossmann said: “there’s, not much left to cancel”.
He added: “There are still question marks, but there s more clarity over when hotels will open, but also when borders will reopen. Airlines are planning to open up capacity, but there is uncertainty and the elephant in the room around quarantines. There has to be some kind of solution around travel bubbles if you want to make it work.”
Insight: As the move to reopen comes, with it comes the move to prove; when you’re closed, you’re closed. When you’re open, you need to explain why you are where you are. STR has a dog in this game, of course, but that doesn’t change the issue.
This is where the merry-go-round begins. Investors are piling up on the sidelines eager to pick up cheap hotels. The brands are standing on the edge eager to pick up conversions.
As Rossmann notes, the hotels will still be there, but that doesn’t mean that everything around them needn’t change; owner, operator, brand, you name it, it’s up for grabs. The future is looking bright for the sector, but not for everyone in it.