After the rapid increase in hotel closures during the onset of the pandemic, the industry-wide question was if the number of closures would revert to the long-run average or reset at a higher level. Judging by the data from the past two years it appears the latter is true. Whereas the 10-year average for hotel closures between 2010 and 2019 was 29,000 rooms per year, room closures spiked to over 60,000 rooms in 2020, moved back to more than 35,000 rooms in 2021 and last year topped 45,000 rooms.
A variety of reasons account for hotel closures, from an inability to refinance, changing customer preferences, as well as reassessing the highest and best use of the land. The plunge in hotel business at the onset of the pandemic in 2020 that prompted the closures of many hotels also had a lingering impact on many of the closures last year. Hotel owners who were able to weather the early pandemic shock from the drop in business faced higher energy and insurance costs and ongoing challenges to hiring line-level employees. All these factors made hotel operations more difficult and more expensive, and ultimately financially unfeasible for many owners.
Other key takeaways from the closure data are that economy-class properties operating at lower price points accounted for 47% of the closed rooms. Also, the average age of the closed economy hotels was 45 years, likely pointing to the functional obsolescence of many of these properties. Hotels that were built in the late 1980s often featured exterior corridors, and likely suffered from inefficient HVAC and electrical wiring, insufficient for supporting the technological demands of today’s travelers.
For 2023, expect another slew of hotel closures as the cumulative effect of higher costs from the ongoing pandemic will make hotel operations more expensive and challenging, especially for those hotels that only showed marginal profitability in the past few years.