Commercial Real Estate: COVID Recovery by Hotels Remains Slow

This Commercial Real Estate sector report is excerpted from the Third Quarter 2022 Fixed-Income Sector Views.

The COVID-19 pandemic created unprecedented challenges for the U.S. hospitality industry. At the low point in March 2020, occupancy dipped to 19.2 percent nationwide and the average daily room rate (ADR) declined to $76.96 on the same day, eventually hitting a low point of $71.62 in April 2020. The American Hospitality Lodging Association (AHLA) estimates that hotels lost a collective $1.1 billion in room revenues alone during the two-year pandemic period.

As restrictions began to ease in 2021, both occupancy and ADR steadily climbed, led by pent-up demand for domestic leisure travel and consumers with savings to spend after the lockdown, although hotels experienced some setbacks during the 2021 holiday season and first quarter of 2022 as COVID variants surged. Since then, 2022 trends turned positive, with both occupancy and ADR predicted by Oxford Economics to return nearly to 2019 levels.

The hotel industry faces headwinds as it works toward a full recovery from the pandemic. Hotel operators remain challenged by the labor market, with employment at the end of 2022 predicted by AHLA to be down 7 percent from pre-pandemic levels in 2019. According to AHLA, business travel is expected to remain more than 20 percent less than in 2019, and less than 60 percent of meetings and events are expected to return in 2022. Non-room ancillary revenue remains well below historical levels, as the demand (and ability to staff) for meetings, events, and food and beverage services remains lower. Inflation is challenging consumers’ ability to spend for nonessential items such as travel and, when adjusted for inflation, the increased ADR is less impactful for hotel investors. Variants of the virus also remain among us, lending uncertainty to when a full recovery may be achievable.

While Smith Travel Research (STR) data show encouraging trends for the hospitality industry, a full recovery is likely still several years away. The most critical factors to recovery will be a return of business travel and events, the return of international travelers, an improved labor market, the health of the broader economy and, of course, confidence that ongoing variants of the virus will not materially affect travel choices.

—By Jennifer A. Marler and Farris Hughes

Important Notices and Disclosures

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the authors, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward-looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

Investing involves risk. In general, the value of fixed-income securities fall when interest rates rise. High-yield securities present more liquidity and credit risk than investment grade bonds and may be subject to greater volatility. Asset-backed securities, including mortgage-backed securities, may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity risk. Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit risk, interest rate risk, liquidity risk and prepayment risk.

Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.

©2022, Guggenheim Partners, LLC. All Rights Reserved. No part of this document may be reproduced, stored, or transmitted by any means without the express written consent of Guggenheim Partners, LLC.

GPIM 53600

VIDEOS AND PODCASTS

 

Are Fixed-Income Investors Being Compensated for the Risks They Are Taking?

Maria Giraldo, Investment Strategist for Guggenheim Investments, joins Asset TV’s Fixed Income Masterclass.

×

Are Fixed-Income Investors Being Compensated for the Risks They Are Taking?

 

Macro Markets Podcast Episode 41: Quarterly Macro Themes for Q3 2023

U.S. Economist Matt Bush, Investment Strategist Maria Giraldo, Investment Strategist Chris Squillante, and Economist Jerry Cai join Macro Markets to discuss the latest Quarterly Macro Themes, which takes a deep dive into issues helping shape our baseline economic views.

×

Macro Markets Podcast: Episode #41