As pandemic restrictions ease and more people start to travel, the hotel sector could present attractive investment opportunities.
“There is good opportunity here, but hotel investing is not without risk,” said Larry Antonatos, managing director and portfolio manager at Brookfield Asset Management, in a Mar. 8 interview.
According to Antonatos, Covid had an acute negative impact on the hotel sector and it remains the most volatile of all real estate sectors, driven by the income instability from short stays. “Hotels essentially are a collection of one-night leases,” said Antonatos.
In April 2020, for example, as U.S. hotel occupancy dropped from 70% to 20%, revenue per available room (RevPAR) — a function of average daily rate and occupancy used to measure hotel revenues — collapsed to -80% relative to 2019.
As the economic reopening has progressed in recent months, U.S. RevPAR has steadily recovered, sitting at +4% as of December.
However, there is still wide dispersion. Within the U.S., the top five markets are characterized by leisure travel, warm weather and drive-to destinations: Miami, Phoenix, Tampa, and New Orleans have RevPAR 10% above 2019 levels, Antonatos said.
Conversely, the five worst-performing U.S. markets are related to business travel, convention travel and international tourism. These markets include San Francisco, Chicago and Oahu, Hawaii, and have RevPAR 37% below 2019 levels.
By segment, extended stays have been strong, while business and luxury travel have tended to be weak, Antonatos said.
But as Covid restrictions have loosened, there has been “pent-up demand” for leisure travel. “People who have been cautious are now finally getting back to travelling, and that will drive continued growth in these leisure markets,” said Antonatos.
As returns to office accelerate, Antonatos expects more business travel for face-to-face meetings as well. Yet, the growth of virtual meetings could mean that “business travel will take much longer to return to its previous levels of RevPAR.”
Regardless, he said significant recovery is still to come within business, convention and international tourism markets, which also presents opportunity, as hotels in these markets tend to be high quality and “therefore attractive to institutional investors and international investors,” Antonatos said.
“We are very excited about hotels — but again, are remaining prudent in our investments,” he said.
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