Despite life gradually going back to normal after two hectic and unprecedented years, we just can’t forget the impact that Covid had on our lives, and that includes its impact on travel.
When life as we knew it came to a grinding halt in 2020, hotels were among the first causalities. The hotel industry experienced it’s most devastating year on record, resulting in historically low occupancy, massive job losses, and hotel closures across the country. Despite the pace of hotel construction continuing to hit record highs in the early months of the pandemic, demand fell off a cliff almost overnight as new development came to a screeching halt.
Two years on, the hotel industry continues to navigate challenges stemming from the pandemic as well as more recent headwinds from labor shortages, inflation, and socio-political concerns. Despite this grim backdrop, there is much for hoteliers and investors to look forward to, with signs that the hotel industry is set to make a big comeback.
1. Strong demand, despite inflation
A recent report by CBRE found that the second quarter of 2022 proved unexpectedly strong for the U.S. hotel market, despite a drop in GDP and inflation reaching a 40-year high. Due to the Covid pandemic, however, people are starting to see travel as a necessity and a worthwhile investment, rather than a luxury. Over half of Americans report that travel is a priority to them and are willing to spend more on travel post-pandemic.
While vacation rentals dominated the share of bookings throughout the pandemic, hotels are now seeing an increase in booking share again. Fewer people cancelled trips during Q2, as room night cancellation rates globally declined more than double digits compared to Q2 2019, another sign of strong demand.
2. Long-haul destinations are making a comeback
One of the most promising trends is a significant increase in demand for long-haul flights (flights with a duration of 4+ hours), with a 50% year-over-year increase in global travellers demand for long-haul flights during the second quarter. This clearly indicates that travellers finally feel confident enough and are eager to travel further afield, having been kept from it for over two years.
This trend was even more prominent from looking at travel trends from the U.S. to Europe, where there was an increase of more than 100% year-over-year growth in travellers demand in Q2. London, Paris, and Rome were among U.S. travellers’ most popular European destinations.
3. Family holidays are back
Long-haul flights aren’t the only thing making a comeback. Family holidays are making a comeback as well. During the pandemic, the number of families traveling internationally declined significantly as parents prioritized their children’s health and well-being. However, Q2 data shows that international family travel has recovered to pre-pandemic levels and, in fact, accounts for the same proportion of travellers as in 2019. Despite concern about macroeconomic factors, like inflation and supply shortages, 70% of Americans were determined to travel abroad “no matter what”.
4. Concerns about Covid still remain
Health and safety concerns still remain, despite McKinsey’s recent U.S. travel survey shows that leisure travel is booming.
While 78% of travellers surveyed say they are comfortable staying in a hotel, only 61% are comfortable staying in alternative accommodations, such as Airbnb and home shares. The top five reasons for staying in a hotel include:
- Consistency and predictability.
- Safety and privacy.
- Convenient location.
- Availability of concierge, lounge, restaurant, and/or other amenities.
- Lower cost.
5. Inclusivity is top of mind for travellers
Expedia’s Inclusive Travel Insights Report shows that consumers are committed to how inclusive travel providers are and want to see accessibility and diversity incorporated into hotel options.
According to the report, 92% of travellers think it’s important for hoteliers and travel providers to meet the accessibility needs of all travellers. Furthermore, travellers are even willing to pay more for hotels that are actively committed to creating an inclusive environment. Hoteliers must ensure they provide accessible and inclusive experiences for every traveller.
6. Consumers are looking for sustainable travel options—and will pay more for them
Expedia’s Sustainable Travel Study found that sustainability is another crucial element influencing consumers’ travel decisions—the data shows that 90% of consumers are searching for sustainable travel options. According to McKinsey’s survey, 75% of travellers agree that sustainability is essential, and half would be willing to pay extra for sustainable lodging. Eco-friendly cleaning supplies, replacing plastic key cards with sustainable alternatives, and smart appliances and monitoring systems to optimize energy usage are some key environmentally-friendly initiatives that guests find the most meaningful.
7. Inflation will affect travel in 2023
Despite the increase in demand for travel, there have been predictions of a global recession hanging over our heads and the travel industry is likely to take some hits with it. The impact of inflation and the rising cost of living is hitting consumers hard and leaving them with less disposable income for luxuries such as travel. Those who can afford it may take advantage of this economic downturn to get better rates and availability. However, this recession will still pose a challenge to those in the travel industry – something that investors should be prepared for.
Final Thoughts for Investors
The hotel industry is amidst one of its most profoundly transformative periods. Covid-19 has accelerated and brought to the forefront important and urgent changes that hotel owners, operators, and investors must act upon.
With hotel demand recovering at a quicker pace than expected, there is much for hotel stakeholders to be optimistic about.
Pressure to prioritize real estate investments grounded in environmental, social, and governance principles on the global stage takes precedence. Globally, the commercial real estate sector has a notable role in promoting ESG principles, and the hotel industry specifically has the opportunity to meaningfully accelerate change.
Impact investing is poised to be the largest asset growth sector globally in 2022 as institutional investors’ interest in companies with a clear commitment to sustainability continues unabated.
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