Skift Take

Real estate developers haven’t slowed down or dimmed interest in the hotel sector during the pandemic, even in parts of the world suffering the most from new variants.

Series: Early Check-In

Early Check-In

Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.

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If hotel development directly reacted to coronavirus variants, construction would have tanked in countries like China. Instead, it’s done the opposite. 

The Delta variant ushered in a new wave of lockdowns in China and Australia over the summer, zapping hotel performance in a matter of weeks. Real estate developers generally take a long view of economic conditions instead of reacting to what was expected to be a short-term hit like a variant. Construction trends proved that ideology over the third quarter. 

The room count in China’s development pipeline reached an all-time high, according to Lodging Econometrics. The Asia Pacific region’s development pipeline held steady during the same quarter. Accor, home to an executive team not hiding their sour near-term outlook on performance in the region, even launched a new brand in China late last month — a development signal variants are a blip in the world of hotel development. 

“This is short-term,” Gary Rosen, Accor’s CEO of Greater China, told Skift last month of China’s closed borders and virus mitigation strategy during the Delta variant. “The government is obviously just really trying to ensure that they’ve got additional stopgaps in place … It’s not a question of the borders not opening.”

Rose-Colored Development Glasses: The Omicron variant spooked the stock market over the last week, but the hotel industry generally conveyed confidence in the face of what could yet again push back the long-awaited return of corporate travel

It’s still early, but hotel executives like Marriott CEO Anthony Capuano and analysts in recent days remained optimistic about the industry’s recovery momentum continuing — with a few bumps in the road — into the new year. 

“While we’re keeping a close eye on this new variant, we do currently still expect to see sequential quarter over quarter improvement in global [revenue per available room, the industry’s key performance metric] versus 2019,” Capuano said last week at a Morgan Stanley consumer conference. 

Capuano expects Marriott to return to pre-coronavirus growth levels, but he admitted elements like new variants and supply chain issues push that recovery timeline out. Analysts expect hotel performance at the individual property level to face a two- to three-month setback due to variants potentially delaying the return to office and corporate travel (yet again). 

A full development recovery may take longer, but Capuano still sees reasons to be happy with where the company stands: There are currently more than 200,000 Marriott-branded hotel rooms under construction, and the company’s total development pipeline is roughly 500,000 rooms. Conversion deals, where an owner of an existing hotel takes on a new brand affiliation, fueled a lot of Marriott’s growth so far this year, and that is likely to continue.

The company also sees plenty of opportunity for growth outside the U.S. and Canada, where Capuano said Marriott has a “17 or 18 percent” market share. Beyond those two countries, Marriott’s market share falls to 4 percent. More than 60 percent of Marriott’s development pipeline is tied to international growth.

“All of that continues to drive our confidence. Precisely when we get there is a little difficult to predict, as you might expect,” Capuano said of returning to pre-pandemic growth rates. “Even the events of the last four or five days remind us of the unpredictability of the virus and the pandemic, and that, coupled with some of the supply chain challenges we’ve had, likely make it difficult to get there in 2022. Although again, I am encouraged by the pace of conversion activity we’ve seen through the first three quarters.”

A Point of Corporate Travel Concern

Not everything can be as rosy as hotel executives convey to shareholders. If there is one thing analysts differ from C-suites at publicly traded hotel companies, it’s around the optimism surrounding the return of corporate travel. 

Hilton CEO Christopher Nassetta at Skift Global Forum in September rallied around the idea business travel would eclipse 2019 levels in three years. His peers, with the exception of Accor CEO Sebastien Bazin, last month at an NYU conference widely viewed 2022 as a banner year for all lines of business and their recoveries

“I think business transient is going to shock us all to the upside,” Capuano said. “Business transient is going to roar back in a way that will defy some of the really downward prognostications.”

A Truist Securities report out late last week threw cold water on that executive panel at NYU.

“Our take on such predictions is that while such an acceleration is certainly possible and we hope such claims do come to fruition, at this point there is very limited statistical evidence in the forward-looking booking and pricing data for individual business travel to support such claims,” states the Truist report. 

Sustained, suppressed business travel demand may not directly sounds like a development story, but it does add to the idea major cities like San Francisco and New York City are going to struggle to put heads in beds.

If that continues for several quarters, investors are going to continue to compete in parking capital in resorts and hotels in leisure destinations rather than the previously reliable, business-heavy cities. 

Some Good News for Conventions: It’s no longer a case of a stalled convention hotel comeback — assuming these major events take place as scheduled. 

While Truist called BS on some of the business travel optimism, the report did cite data showing booking volume for conventions and city-wide events was “well above comparable 2019 levels” from August through November following a pullback in July amid the Delta variant. 

The sour part to the meetings and events sector came from the corporate side, of which the cumulative booking pace for corporate meetings and events is down 35 percent from 2019 levels.

“While we have not seen any material change in booking patterns over the past several days since news of the latest Covid variant broke, our analyst intuition tells us that that such news does nothing to help already hesitant corporate human resource and risk departments accelerate allowing their employees to return to travel…,” the Truist report states.

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Tags: accor, china, Early Check-In, hilton, marriott, omicron variant, Skift Pro Columns

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