The improved performance of hotels in 2021 is by now well established. American consumers, many of them vaccinated and, as a group flush with over $2.5 trillion in additional savings, have flocked to beaches and leisure destinations.
At the same time, business travel demand is slowly reemerging as well. As corporations reopen offices, some are beginning to send staff to attend trade shows and conventions, so midweek occupancy levels at business hotels have also registered increases.
One way to juxtapose the hotel impact of leisure and corporate travel is to differentiate hotels by location type. STR, CoStar’s hospitality analytics firm, assigns each hotel one of six location types; two of types are "urban" and "resort" locations.
Location types are based on postal ZIP codes so not all hotel properties categorized in a resort location are resort hotels, they are just located in areas that are traditionally frequented by leisure guests. The same concept holds for urban hotels which are often located in or near a market’s downtown area, but can encompass full- and limited-service hotels.
When comparing the room demand patterns for the first six months of this year a clear trend emerges. While hotels in resort locations have almost reached 2019 demand levels, the same cannot be said for hotels in urban locations. In other words, when travelers are voting with their own wallets, they choose to travel. But with many offices in downtown locations still closed and with conventions moving online, corporate demand remains sparse and results for hotels in urban locations indicate that.
Hoteliers are able to take advantage of the healthier demand in resort locations and can translate higher demand and occupancy to higher average daily rates.
Comparing ADR to the same month in 2021 with 2019 finds that resort location room rates for the summer months are now higher than they were in 2019. The same cannot be said for hotels in urban locations, which are still waiting for the sustained return of corporate business travel and the associated higher average daily rates.
In the U.S., Labor Day is the traditional beginning of corporate travel season as schools are back in earnest and families have returned from vacations. But this year, the pickup of corporate group and transient demand is quite uncertain, as the delta variant of COVID has caused new case counts to rapidly increase.
It is not unreasonable to think that corporate travel managers and their CEOs will take their duty of care seriously and move corporate travel into the first quarter of 2022. If this happens, further underperformance by urban hotels may be expected.