The COVID-19 pandemic has caused unprecedented disruption to the hospitality industry, so when it comes to mapping a post-pandemic recovery, it's clear that we are in uncharted territory. The Lodging Conference hosted Bernard Bauhmohl, Chief Economist of the Economic Outlook Group. His remarks related to vaccines, treatments, lack of stimulus package and election results led us to believe we are in for a longer ride along the trough of this recession.

Our assessment is that we are at the midpoint with Q2 and Q3 behind us, two more quarters of recession will put us at one full year, close to the average length of a recession in the U.S.

The good news? Baumohl believes that either presidential candidate will deliver a positive GDP growth in 2021 between of 2.2% if Trump wins and 3.4 percent if Biden wins. He indicated there would be several lasting changes post-COVID-19. These include the economic divide continues, the US takes back the lead in manufacturing from China, remote work continues, corporate travel is reduced by 10-15% and there is movement from urban markets. He added that public health is now a national security issue, retail malls are out, there is a rise in xenophobia and the Federal Reserve is now politicized.

Adam Sacks, president of Tourism Economics, predicts that it will take roughly three years for hotel demand to bounce back to 2019 levels, while CBRE foresees demand for U.S. lodging accommodations returning to pre-crisis levels in the third quarter of 2022. Because much of this decline is not caused by underlying fundamental economic problems, most market segments should start to see meaningful relief in the first and second quarter of 2021. However, COVID-19 will continue to define this fragile economic recuperation. Most experts think a vaccine is likely to become available by mid-2021, but nothing is guaranteed and vaccine distribution poses another significant hurdle. So, when will this multi-year recovery begin and what segments can we expect to bounce-back sooner?

Corporate and group travel remain elusive and will lag behind leisure. Hotels reliant on large group and conventions will be slow to pick up as meeting attendees get reacclimated to being close to large numbers of people. Destinations with appealing natural amenities such as beaches and mountains have already seen a high influx from pent-up demand this summer and will likely hold steady through the fall. Drive-to locations are also experiencing increased occupancy levels.

Even with a slight improvement in ADR and the eventual rise in occupancy through 2021, pricing confidence will waver as global uncertainty around the pandemic persists. We can be certain that recovery is inevitable. Tipping points in the coming months will include cleanliness, customer trust, and disruption from short term rentals, OTAs and other hotels. Bandwidth, AI, mobile, and touchless technology will continue to drive engagement and delight guests. F&B needs to be personalized and creative with "Instaworthy" moments, while maintaining safe social distance practices in accordance to local ordinances. Expect social media marketing and user generated reviews to dominate public relations and reputation management. Staying on top of new technology will wow guests and should be a necessity at this point.

Customers are interested in traveling again when restrictions lift, even willing to do so before a vaccine is available at scale. According to the McKinsey & Co. September report, "we see a considerable increase in searches and advance bookings —however, due to necessary public-health measures and safety precautions—such as quarantines, closures, and other restrictions—the leisure space may be curbed by the inability to do anything meaningful at a destination. Similarly, many business travelers who are ready to fly again may be limited by corporate travel policies and companies' understandable focus on duty-of-care obligations to employees."

For the San Diego lodging market, we believe supply will increase by 2 percent, while demand will continue its downward trend by -17 percent in 2021. Occupancy in this market will see a 15 percent increase, rising to 65 percent with an ADR of $145, resulting in a $94.25 RevPAR. Other Top 25 markets will be slower to recover because of their tendency to be situated in urban and resort-type locations with heavy reliance on international and corporate travel. And remember that supply numbers are coming up due to the closure of many hotels between April and October of this year. This will keep pressure on average rates and occupancy levels as more rooms are available for far less travelers now that summer is gone.

The pandemic and the rise of remote work have accelerated growth of the "bleisure" travel segment. Demand drivers will eventually be realized and the need to travel and create new experiences will still be present at the end of this crisis. Until then, resilient owners and operators must continue to create and adapt action plans for the new year. Watch consumer spending trends, employment and business growth as we approach year end. Keep your eyes on capital markets and interest rates and stay nimble! To a stronger 4th quarter than most people expect!

Robert A. Rauch
+1 858 663 8998
R.A. Rauch & Associates, Inc.