Spring (March-May) is the peak season for hotels in our market. These months generate a significant portion of the full years revenue and profit, averaging about 5% more revenue during the Spring travel season with higher occupancy rates and even more important higher ADR’s which flow directly to the bottom line. Unfortunately this has all been lost for 2020 and will not return until 2021. Currently occupancy is averaging about 20% in our market. It has increased from around 10% earlier. Many hotels have closed, most temporarily. Across the U.S. it is estimated that 50% of all hotels will close at some point. Most will be temporary and will reopen as the economy improves. The brunt of the damage is expected to occur in the 2nd quarter, with the third quarter improving and the fourth quarter more normal. Unfortunately the fourth quarter is the weakest quarter of the year. Average occupancy for 2020 is expected to be 37.9% a 42.6% decline from 2019. Occupancy for 2021 is expected to be 59.7% an increase of 57.3% over 2020.
Domestic leisure travel, fueled by cheap gas and relaxation of lockdown orders will be the first to bounce back followed by corporate transient and corporate group demand only after a feeling of safety takes hold. The first hotels to recover will be the drive to hotels in smaller markets, then urban, followed by airport hotels and the last to recover will be the convention hotels. The economy extended stay hotels with exterior corridors are doing better than other hotels, as contractors can park their pickup trucks at their door and leisure travelers have direct access to their rooms without having to walk through a lobby or down a hallway, avoiding contact with other guests and staff. It is estimated it will take 3 years for hotels to regain their full value.
Retail was struggling before the pandemic. The pandemic just put an exclamation point on retail. It is estimated that 70 to 90% of retailers including restaurants, beauty salons, barbershops etc. missed their April rent or mortgage payments. The same is expected for May. Office users fared better with 90% of them making their rent/mortgage payment in April. But this sector has a lot of exposure going forward as people and businesses adjust to employees working at home. Multifamily remains one of the darlings as 89% of renters made their April rent payment but May is a big question mark. Hopefully people will use their stimulus money and unemployment money to pay May rent. Apartment renters are the segment most impacted by this pandemic as they tend to be the waitresses, bartenders and hair dressers who are forced to live paycheck to paycheck and they are the first to be let go by their employers. Industrial was another darling as most tenants made their April rent payment and are expected to going forward. Self Storage continues to be the most recession resistant sector. In the Great Recession this sector actually improved as people downsized from their big homes to smaller houses and needed to store their furnishings. This industry has become very automated with rent automatically charged every month to a credit card. The customer forgets about the storage until the next automatic credit card payment is charged, and this goes on forever. Student Housing once one of the most sought after investments could be in for a rough time as on line learning becomes more popular and people were already questioning the high cost of a college degree. Some colleges will actually be forced to close. Those that stay open will require their students to stay in the College owned dormitories if they are not participating in the on line learning.