The COVID-19 pandemic has hit every sector of the commercial real estate industry. Few, though, have suffered like hospitality. Fortunately, a new report from CBRE offers some hope for Minneapolis’ now-struggling hotel market.
According to CBRE’s June Hotel Horizons forecast report, the Minneapolis lodging industry should begin an accelerated recovery in 2021. The challenge? Before that recovery happens, the hotel industry in the Twin Cities will endure an unprecedented slump.
CBRE predicts that the Minneapolis hotel market’s RevPAR — revenue per available room — will fall 58.80 percent to $33.25 through the second half of 2020. Those looking for hope? CBRE also predicts that RevPAR in the Twin Cities will bounce back to $54.97 in 2021. That would equal an increase of 65.30 percent.
The Hotel Horizons forecast predicts that the Minneapolis-area hotel market will enjoy a stronger recover than most other markets across the country. CBRE says that national RevPAR will increase by a lower 48.4 percent in 2021 when compared to the second half of this year.
“Although the 2020 Minneapolis lodging market is expected to experience the worst decline seen in our lifetimes, a large portion of the gains lost are forecasted to be recovered in 2021, with numbers approaching pre-pandemic levels in 2022 and 2023,” said CBRE’s Mark Letscher, Midwest hotel appraisal leader.
For the country as a whole? CBRE predicts that demand for U.S. lodging accommodations will return to pre-pandemic levels in the third quarter of 2022. However, the firm also predicts that a lag in Average Daily Rate will stall the recovery in RevPAR until 2023.
Jamie Lane, senior director of hotels research for CBRE, said that lodging operators will see a 37 percent reduction in the number of room nights occupied in 2020 when compared to 2019.
U.S. hotel occupancy levels are expected to decline to as low as 26.2 percent during the second quarter of 2020. CBRE forecasts an annual occupancy level of 41 percent nationally for all of 2020. Luxury hotels will suffer the greatest hit, with CBRE predicting a 2020 occupancy level of 33.4 percent. Economy hotels are projected to hit the highest annual occupancy level this year, 46.4 percent.
Those are grim numbers, but CBRE officials do see the hotel industry recovering, starting next year.
“Although the trough in 2020 lodging performance will be much deeper than anything we’ve seen in the past 80 years, much of this decline is not caused by underlying fundamental economic problems,“ said Bram Gallagher, senior economist with CBRE Hotels Research. “Once social gathering restrictions are lifted, an expected return to the strong underlying economic conditions that existed before 2020 will restore economic production.”
A critical factor for any recovery is a reduction in the number of new COVID-19 cases. In the event of a prolonged need for social distancing and a persistent occurrence of new COVID-19 cases, CBRE has developed a forecast of a hypothetical downside scenario in which the recovery in RevPAR to precrisis levels is pushed out to 2025.
“Drive-to leisure destinations have been the first markets to show signs of recovery,” Lane said. “When people can drive in their own car, and then go directly into their own room, they have a sense of control and safety. Hotels oriented toward group meetings will likely lag in recovery as meeting attendees get reacclimated to being close to large numbers of people.”