July 24, 2020
By Robert Mandelbaum & Bram Gallagher Ph.D.

Since the start of the COVID-19 pandemic, we have analyzed the operating performance of U.S. hotels during historical economic recessions to estimate the level of depressed performance in 2020.  Unfortunately, given the forecast declines in occupancy, ADR, and RevPAR, most owners and operators are focusing on cash management during 2020 as opposed to an analysis of the traditional revenue, expense and profit metrics as presented in a Uniform System of Accounts for the Lodging Industry (USALI) compliant summary operating statement.  Our focus now shifts toward 2021 and beyond, as CBRE’s current U.S. lodging forecasts call for substantial percentage gains in RevPAR the next few years.  How will our firm’s forecasts of RevPAR through 2024 translate into projections of total operating revenue and gross operating profits (GOP)?

Learning from the Past


Our starting point is an examination of how the U.S. hotels in CBRE’s Trends® in the Hotel Industry database have recovered from 11 past economic recessions.  For the purpose of this analysis we define recovery as the point when revenues and/or profits reach the dollar per-available-room levels achieved the year prior to the greatest declines in those respective measures.  Our analyses were performed on both a nominal and real (2019 constant dollars) dollar value basis.

Some of the 11 economic recessions did not result in nominal or constant dollar declines in performance.  The reasons range from periods of high inflation that masked any declines in performance, to the nature of the economic recession and its limited influence on travel (ex: war economies).

During the 11 historical recessions, revenue recovery was achieved six times on a nominal basis, and nine times on a real dollar basis.  On average it took 3.5 years for the hotels in the sample to recover their revenue on a nominal basis, but real revenue recoveries lasted 14.2 years on average.  Nominal GOP recoveries occurred nine times and averaged 5.3 years.  On the other hand, the nine real GOP recoveries lasted an average of 14.4 years.

The greatest declines in revenues and profits occurred during the 2009 recession.  However, reflective of the record occupancy levels achieved by U.S. hotels during the 2010s, revenue from the 2009 recession was exceeded within five years on a nominal dollar basis.  On the bottom-line, the recent implementation of operating efficiencies enabled U.S. hotels to achieve a profit recovery just one year later.

Conversely, the average hotel in our Trends® database has yet to achieve a real recovery from the 2001 recession in terms of revenue or profits.  This highlights just how prosperous the 1990s were for U.S. hotels, peaking in revenues and profits on a constant dollar basis in 2000.

The longest revenue and profit recoveries occurred after the 1958, 1960 and 1970 recessions.  On a nominal dollar basis, the revenue recoveries occurred within three years, but the GOP recoveries did not happen until 6 to 11 years after the recessions.  The length of the recovery stories for these recessions is more impactful when looking at the data on a constant dollar basis.  Real revenue and profit recoveries took anywhere from 27 to 41 years after the 1958, 1960 and 1970 recessions.  The multitude of recessions that occurred from 1959 through 1991, combined with periods of double-digit inflation, help explain these long recovery periods.

Beyond 2020


Now that we know how the properties in the Trends® sample bounced back from historical recessions, we explore what the turnaround from the 2020 recession might look like.  CBRE’s proprietary econometric Investment Performance model relates historical changes in occupancy, inflation, revenues, and expenses to forecast changes in unit-level total operating revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA).  By applying the CBRE Investment Performance forecasts for the U.S. lodging industry as of July 4, 2020, to the operating statements of the properties in our Trends® database, we have projected the pace of growth for property-level total operating revenue and GOP through 2024.

CBRE’s June 2020 Hotel Horizons® market forecast for the overall U.S. lodging industry calls for a 21.6 percent compound annual growth rate (CAGR) of RevPAR from 2020 through 2024.  U.S. RevPAR levels are projected to return to 2019 levels on a nominal basis in 2023.

Current thinking is that significant changes to the amenities and services offered by U.S. hotels will be implemented in response to the COVID-19 pandemic.  In general, it is believed that these changes will mute the growth in other revenue sources such as food and beverage, but serve to increase the cost of cleaning guest rooms and public areas.  Accordingly, the Investment Performance model projects a 15.9 percent CAGR for total operating revenue through 2024, along with a 4.7 percent CAGR for expenses.  The net result is a 100.1 percent CAGR for GOP over the period 2020 through 2024.

Using the outputs of the model, both total operating revenue and GOP for the hotels in our Trends® sample will achieve nominal recovery by 2024 (5 years).  It is anticipated that the revenue and profit recoveries will be achieved concurrently because of the efficient levels at which hotels were operating coming into 2020.  GOP margins in 2019 were 450 basis points (bps) above the long-run average, and the 2019 GOPPAR level was 21.8 percent above recent levels on a constant dollar basis.  We believe these operating efficiencies will carry forward in the near term.

Unfortunately, given the magnitude of the expected declines during 2020, and a forecast 2.7 percent average annual inflation rate over the next four years, we believe a real recovery in total operating revenue and GOP will not occur until beyond 2024.

The pace of revenue and profit recovery will vary by segment of the industry.  CBRE’s June 2020 Hotel Horizons® forecasts project RevPAR recovery for economy and mid-scale hotels in 2023.  Accordingly, these segments of the industry will enjoy nominal total revenue and GOP recoveries one year prior to the industry-wide average.  On the other end of the spectrum, luxury hotels are projected to lag and not see their total revenue and GOP exceed 2019 levels on a nominal basis until 2025.

Relatively Quick Recovery


As consultants, researchers, and academics continue to study the impact of COVID-19 on the U.S. lodging industry, a constant conclusion has been, “What we are currently seeing is unprecedented.”  Such is the same for U.S. hotel operating performance.  The depths of declines in revenues and profits is something not observed in the 84 years our firm has been studying U.S. operating statements.  Therefore, it is challenging to rely on past performance to project what may happen in the future.

One observation we can make – U.S. hotels do eventually recover from significant shocks to the industry.  Despite the record-breaking declines in total revenues and GOP U.S. hotels have suffered in 2020, our current forecasts point toward nominal recovery periods shorter than the 2001 and 2009 industry recessions.  If hotel owners and operators can endure the pain felt in 2020, the pace of the industry recovery should be relatively pleasing.

Because of the evolving nature of the COVID-19 pandemic and its impact on the economy, it should be noted that CBRE’s forecasts of the lodging industry are updated as warranted.  For the latest CBRE market forecast, please visit the News & Information section of our website – pip.cbrehotels.com.



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Robert Mandelbaum is Director of Research Information Services for CBRE Hotels Research.  Bram Gallagher Ph.D. is Senior Economist for CBRE Hotels and CBRE Econometric Advisors.  To benchmark the potential future performance of your hotel(s), please visit pip.cbrehotels.com/hotelhorizons, or contact Client Services at [email protected].