The U.S. hotel industry seems to be firmly on its way to recovering from the worst year the industry has ever recorded. Just as quickly as the pandemic led to widespread closures and cancellations beginning in March 2020, we are seeing signs of an equally robust recovery, with 2021 expected to show the strongest growth rates for all key indicators in the 30-year history of STR, CoStar's hospitality analytics firm.

After reviewing the combination of factors that could go wrong and result in a potential downside scenario, here we examine what could go right and result in a potential boom scenario. There are a lot of small and large items that, taken together, could provide the basis for a long-term recovery for the beleaguered sector.

A year ago, you probably heard more and more about people getting infected with COVID-19. These days, you probably are hearing more about people getting their shots. The narrative has changed, and the daily vaccination totals will continue to increase if states open up the vaccines to all residents 16 and older as expected.

With more vaccinations comes a stronger feeling of safety that has been lacking for a year. Americans will likely take to the road, vaccinated and eager to embrace family and friends again. Expected to follow closely behind will be business travelers, who will also start to fly and populate upper-upscale-class hotels again, just as in years past.

In its latest release, Oxford Economics suggests that U.S. gross domestic product growth will hit 7% this year. This is a significant upward revision from its prior 5.9% projection. The relationship between GDP growth and room demand growth for the U.S. hotel industry has been well established, and more GDP growth will translate to more demand for hotel rooms. The American economy is expected to continue to grow, and consumers and companies will try to make up for a lost year with spending fueled by a strong stock market and stimulus money.

American consumers, while staying home for over a year, bought a lot of goods delivered by online grocers, Amazon and other delivery services. But they could not buy experiences. A lot of money that was supposed to be spent on that birthday trip to Italy or the family reunion in Cleveland was saved and stashed away, only to be unleashed now.

Oxford Economics data suggests that around $1.7 trillion was added to American savings accounts during the pandemic, so travelers who have the will can easily find the financial means to hit the road.

Adam Sacks of Tourism Economics has a favorite chart that shows Longwoods International's longitudinal survey of travel sentiment. It’s easy to see why an economist who thinks all day about the travel industry likes this data. The trend is clear: More consumers are planning to finally get out of their houses and travel again. In his opinion, this chart is the main driver of positive room demand. After a long, cold winter and immense safety concerns, travelers are ready, willing and able, and hotels will benefit.

The number of people with jobs is steadily rising, and so are their earnings. After a time of unemployment or underemployment, consumers will likely be eager to travel, even just for a short, regional getaway, to re-establish a sense of normalcy after a trying year.

The other data point that is worth noting in regard to the unemployment rate is how low it has stayed throughout last year for those in white-collar professions. Here, earnings were not affected, and money was likely saved with the positive implications for spending as outlined above.

When large conventions were canceled last spring, some group organizers simply pushed them to the fall, only to then postpone to this spring, only to finally move the meetings one last time, to fall 2021. And those meetings are then held side by side with the meetings that were always planned for this fall. Attendees, after not seeing their business contacts and colleagues for 18 months, will likely be eager to attend.

All this could translate into a situation where group meeting space in the third and fourth quarters is hard to come by. Add to that situation resurging transient corporate travel demand, and hotels may experience compression nights, defined as those with occupancy levels at 95% or higher, in the larger downtown areas much earlier than expected. Compression nights could give hoteliers some pricing power, which is something many desperately need.

Another sign that group travel is ready to recover: In February, over 1 million group rooms were sold, and that was even before the availability of widespread vaccinations.

The outcome from the lack of visibility for construction lenders and developers was that over the past 12 months, hotel projects that had not broken ground were moved from the planning phase to the trash can, euphemistically referred to as “deferred” or “abandoned.”

The implications are that fewer hotels will start construction in the next two years, meaning that the properties that open as the industry begins to fully recover will likely see fewer new competitors. And that bodes well for occupancy growth and hopefully rate growth.

Overall, many things could go right as the industry starts its recovery. We are optimistic that in the long run, hotels will once again achieve the level of room demand and average daily rates seen in 2019, depending, of course, on myriad positive external and internal factors.

Jan Freitag is the national director of U.S. Hospitality Analytics at CoStar.