Home Industry News Report: Extended Stay, Rural Hotels Outperform Urban Properties During 2020

Report: Extended Stay, Rural Hotels Outperform Urban Properties During 2020

CBRE, Chicago, New York, Los Angeles
Courtesy of Ben Dutton

By Catherine Sweeney

As travelers chose to stay home during 2020 amid the COVID-19 pandemic, those in the hotel industry struggled to keep doors open. While all hotel operators saw a decline in guests, a recent report from CBRE showed some types of hotels outperformed others. 

“As the economy suffers, what’s the first thing to get cut?” said Robert Mandelbaum, director of research information services for CBRE’s hotel research. “Employers cut business travel spending, and consumers cut leisure travel.That’s something we’ve seen in the past. What’s unique about 2020 is we were going through a health crisis with a need for social distancing… It was more than just a pocket issue, it was a physical health issue.”

According to the report, hotels in the U.S. performed poorly throughout 2020, with a 44 percent decrease in occupancy rates overall. In a sample of more than 2,000 hotels across the nation, CBRE found total operating revenue declined by 57.6 percent, resulting in profit declines of 78 percent. Losses in earnings before interest, taxes, depreciation and amortization also totaled 107.6 percent.

“Obviously, 2020 was an extremely difficult year for the lodging industry…It was clearly the worst performing year since the great recession,” Mandelbaum said. “All hotels hurt, no matter how you slice it. Some did worse, and some did better, and what I mean by ‘better’ is really just less of a decline.”

Mandelbauhm explained that extended stay hotels outperformed while other hotels, such as those in more urban areas, struggled due to social distancing guidelines. In urban areas, luxury hotels and hotels that rely primarily on business travel and conventions did worse. Hotels in rural or resort areas, however, performed slightly better as those in the U.S. felt safer traveling to less populated locations. 

Fairing slightly better than some property types, extended-stay hotels showed a loss in earnings of 68 percent. At the same time, occupancy rates declined by 25 percent. 

“Because of the nature of the facility – multiple bedrooms, kitchen unit, relatively affordably priced – they actually were a preferred property type because people and families could stay for a period of time, not have to worry about going out to restaurants, and those in rural and resort areas tended to do even better. What we found this time around, too, was that when people were taking vacations, they could stay for an extended period of time because they could work remotely,” Mandelbaum said. 

In 2020, hotels in resort areas showed a loss in earnings of approximately 78.3 percent with a 54.5 percent decline in occupancy. Midscale and economy hotels performed similarly with a 71.6 percent loss in earnings.

In comparison, luxury hotels showed a loss in earnings greater than 100 percent, with convention hotels showing the greatest loss at approximately 149 percent. At the same time, occupancy rates for both types of properties showed more than a 60 percent decrease. 

“Again, it was just the density of places like Chicago, New York, Los Angeles, and those places tended to get hit really hard with the pandemic initially,” Mandelbaum said. “The downtown hotels got hurt. And most urban hotels are dependent on conventions and that’s an issue with social distancing.”

However, CBRE remains optimistic about the future of the hotel industry as more U.S. citizens receive vaccines and return to traveling. Hotel performance is anticipated to be slow through the first part of 2021. Performance is expected to pick up after that with a full recovery to pre-COVID-19 levels by 2024, according to the report. Upscale hotels, however, are expected to take longer to recover through the middle of 2025. 

“I think there’s pent up demand, especially on the leisure side,” Mandelbaum said. “I think there’s three types of hotel guests, roughly speaking- leisure travelers, business travelers and convention travelers…and people think leisure travel will bounce back the quickest. They think, because of this pent up demand, that leisure travel this summer is going to be particularly busy.”