State of the U.S. Lodging Industry and Outlook Heading into 2021
This Downturn is Deeper than Past Downturns
By Ryan Meliker President & Co-Founder, Lodging Analytics Research & Consulting | January 31, 2021
The Covid-19 pandemic has had a deeper and more pronounced impact on the U.S. lodging industry than any past downturn. In 2020, no market was left unscathed by the pandemic, as even a market like Norfolk, which benefits from the drive-to leisure demand of Virginia Beach and a stable economy supported by military, government and defense contractors experienced a RevPAR decline of 35.5% through October.
In fact, this downturn has been steeper and deeper than each of the past two, with average RevPAR down 37% just seven months into the downturn, on a rolling twelve-month average. That compares to a decline seven months into the Great Financial Crisis (GFC) downturn of just 3% and a peak decline of 19% on a rolling twelve-month basis.
Following 9/11, U.S. RevPAR was down 6% seven months into the downturn and the decline peaked at 12%, on a rolling twelve-month basis. Following the Great Financial Crisis, it took 59 months (that is just shy of five years) for the U.S. industry to recover to the prior peak's nominal RevPAR level on a rolling twelve-month basis. Following 9/11 it took 52 months on a rolling-twelve-month basis.
Note that following each of the prior two downturns, nominal ADR recovered to the prior peak in roughly 4 years, which was about 2 years faster than occupancy. If these trends held during this recovery, ADR would recover to peak nominal levels some time from late 2023 to early 2024, RevPAR in mid-to-late 2024 and occupancy in 2025 or 2026.
Additionally, during the Great Financial Crisis, hotel values dropped 27% from 2007 to 2009 and did not recover to 2007's nominal levels until 2015 (8 years after the prior peak). However, values continued to climb upward through 2018 and peaked 18% above 2007 levels that year. According to Real Capital Analytics, hotel values declined in 2019 by 6.5%, illustrating that values across the U.S. hotel industry began to decline in advance of the pandemic.