While the hotel sector could face renewed travel restrictions, we expect higher occupancy levels from an increase in inbound international and business travel in 2022.

International travel: The recovery catalyst for many U.S. gateway markets

Even though hotel demand plummeted by 57% early in the pandemic, leisure travel was enough to double the overall hotel occupancy rate from its pandemic low by late summer 2020. By July 2021, overall revenue per available room (RevPAR) reached 94% relative to 2019, according to Kalibri Labs. What’s still largely missing, however, are individual business, group business and international travel bookings. As a result, core urban areas—particularly U.S. gateway cities—are languishing, with some markets down as much as 67% in RevPAR relative to 2019.

Business travel and group demand are constrained by corporate travel budgets and policies, which took a hit as the delta variant swept the U.S. in late summer 2021. The omicron variant will impact business travel, particularly in the early part of 2022.

However, the easing of inbound international travel restrictions will catalyze hard-hit global gateway cities in the U.S. and aid the recovery over the course of 2022. As recently as August 2021, international travel was down nearly 78% relative to 2019.

For 2022, we expect inbound travel, led by leisure travelers from Europe and Asia-Pacific, to drive increased hotel demand.

Figure 14: Border Entrants

Source: National Trade and Tourism Office, September 2021.

Based on vaccination rates by country and several key consumer sentiment surveys, we forecast the rollback of international travel restrictions for vaccinated travelers to account for approximately one-sixth of our 23% total revenue growth forecast for the hotel sector in 2022.

The benefits will not be uniform. Resorts and all-inclusive destinations will continue to be strong performers in 2022 as travelers seek simplicity and price certainty. Already operating at 13% above 2019’s summer RevPAR, Miami has benefited from the shift in travel patterns, and thus may end up with less growth. Harder-hit markets like San Francisco and New York, with RevPAR still down 61% and 56%, respectively, compared with 2019, may benefit more in 2022. Overall, supply growth will continue to moderate given increased construction costs and labor shortages.

Image of a hotelHarder-hit markets like San Francisco and New York, with RevPAR still down 61% and 56%, respectively, compared with 2019, may benefit more in 2022.

Figure 15: Incremental Hotel Guest Nights

Source: National Travel and Tourism Office (September 2021), Our World in Data (November 2021), Deloitte State of the Consumer Tracker (October 2021), Brand USA (2020), CBRE Hotel Horizons (November 2021).

Figure 16: Incremental International Revenue As % Of 2022 Forecast Revenue

Source: National Travel and Tourism Office (September 2021), CBRE Hotel Horizons (November 2021).

The resumption of inbound international travel will provide a lift to hotel fundamentals in 2022. When combined with the continued recovery in individual and group business travel, this might just make the difference between profits and losses for some struggling hotel operators.

To date, investor demand for hotel assets has mirrored consumer demand trends, with many leisure-oriented hotels trading hands at premiums seen before the pandemic. As the pace of recovery in corporate and group demand unfolds, we expect pricing for group and corporate-oriented hotels will increase.

Image of person holding luggageThe resumption of inbound international travel will provide a lift to hotel fundamentals in 2022. When combined with the continued recovery in individual and group business travel, this might just make the difference between profits and losses for some struggling hotel operators.

Trends to watch

  • The return of business and international travel
    Business and convention travel will slowly rebound, with “leisure” becoming more common as business travel, still less frequent, will include additional leisure travel days. Meanwhile, the return of international travelers will provide a much needed boost to global hubs that have been particularly hard hit by the pandemic and have experienced a slower recovery.
  • Getting back to business as usual
    For hotels that have been limiting occupancy levels and amenities to stay open, we expect to see lower operating margins but strong cash flow growth, as accelerating top-line trends will be partially offset by wage pressures and the resumption of normal amenity and service levels. Overall, hotel owners will work to drive rates instead of chasing occupancy.

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