2022 Summer Issue - 96

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JAN FREITAG
6 Themes
That Will
Shape
Travel in the
Summer of
2022
Outlook is strong, though some
headwinds remain.
Two years after the start of the global
pandemic, the outlook for the U.S. hotel
industry is decidedly positive. STR, a
CoStar Group company and a global
leader in hospitality analytics, continues
to report ever-improving metrics in the
United States. The prospects for the
sector are embodied in the following
six themes.
1. Leisure demand has been strong,
with little price resistance. When international
travel shut down in early 2020, travelers
stayed closer to home in what was
dubbed the great American road trip. What
was equally interesting was the immense
spending power that leisure travelers
brought to bear. Whereas the beginning of
the pandemic was characterized by spending
on things, there was a quick evolution
toward buying experiences, and high-end
vacations were at the top of the list.
2. Groups return more quickly than
expected. Another positive sign for the
hotel industry is the continued increase
in group demand. Consumption of group
rooms, sold in increments of 10 or more,
hit 7.2 million in April 2022-only 1 million
rooms below the April 2019 level and
a clear indicator of renewed corporate
spending on travel. After two years of
almost no travel, it is likely that the return
to the association and corporate group
events serves two purposes: certainly,
there are deals to be made and clients
to be seen, but maybe just as important,
the social interactions that were lacking in
Zoom or Teams meetings can be rekindled.
3. Lack of clarity on a return to the
Jan Freitag
96
URBAN LAND
office hinders corporate transient demand.
Over the past two years, workers have
been extremely productive-without going
to the office-and now company leaders
are rethinking what work in the office and
return-to-office models look like. Hybrid
work schedules with two or three days in
the office seem to be the new norm. But if
fewer workers are in the office, it implies
that fewer workers can be visited by fellow
business travelers. This, in turn, leads to
fewer business trips. So, return-to-office
plans have a direct impact on individual
demand-and while those plans are in
flux, so is the outlook for transient travel.
4. Hotel development pipeline slows.
The number of rooms under construction
continues to decline, all the way to
150,000 in April-down from more than
over 210,000 rooms in early 2020. Projects
that have broken ground will continue to
open, but projects in the final planning
stages may be delayed. There are myriad
reasons for delays: interest rates have
SUMMER 2022
risen and may force the developer to go
back to the drawing board to rearrange
the capital stack, and it may be difficult
to find construction crews in an environment
of rampant single- and multifamily
development. In addition, the supply chain
for items such as doors, refrigerators, and
televisions is still disrupted, delaying construction
starts.
5. Transaction activity heats up. Hotel
real estate is considered an inflation
hedge because room leases can be reset
nightly. In the high-inflation environment,
interest in hotel assets is high. In
2021, the single strongest year ever in
transactions was recorded, with over $50
billion in hotel properties sold. Many of
these trades were on the high end of the
markets, be they casino hotels or leisure
resorts, and the deals often fetched
record-breaking prices per room. Continued
robust investment activity can be
expected for the foreseeable future.
6. Lack of workers and higher labor
costs keep operators up at night. The
main challenge that makes operators
nervous is the lack of access to staff.
According to the U.S. Bureau of Labor
Statistics, the industry is operating with
around 300,000 fewer workers now than
in early 2020, and wages for line-level
employees are rising at a double-digit
pace. Also, existing staff members are
often asked to work longer hours, leading
to a rising number of employees leaving
their jobs. No single, simple solution
exists to address the labor shortage, but
two outcomes are clear: services will have
to be cut or adjusted, and wages will rise,
putting pressure on owner profits.
After the worst downturn in history,
headwinds remain and will force continued
vigilance by owners, investors, and operators.
But for now, impressive operating
results continue to attract capital to the
U.S. hotel industry. UL
JAN FREITAG is national director of hospitality analytics for
U.S. CoStar Group and a member of the ULI Hotel Development
Council.
2022 Summer Issue

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