Insights on economy hotels’ rise above higher segments
 
Insights on economy hotels’ rise above higher segments
21 JULY 2020 8:40 AM

Data presented by STR as part of a Hotel Data Conference webinar series shows that economy hotels have stayed afloat a bit better than luxury hotels during the pandemic in terms of performance.

NASHVILLE, Tennessee—Data from STR continues to show that economy hotels have fared better than hotels in higher classes throughout the pandemic.

STR is the parent company of Hotel News Now.

On a “Tipping the (chain) scales” webinar presented as part of the Hotel Data Conference, Ryan Lynch, business development executive, industry partners, at STR, showed how the COVID-19 pandemic has affected each of the seven STR-defined chain scales thus far.

COVID-19 impact
The economy class counts for almost half of all independent U.S. properties. As of May, 47% of all independent properties are economy class, leaving 53% for luxury through midscale properties.

The data for March, April and May 2020 is “really the story of two ends; we have a very different story for high-end properties versus the lower end,” Lynch said.

“Luxury and upper-upscale properties both have the lowest occupancies of all the scales; this is largely due to the lack of group business,” he said. “These two (segments) are both dependent on the group traveler, both business and leisure, and we’ve lost both of those segments this year.”

Source: STR, © 2020 CoStar Realty Information, Inc.

These properties are also largely affected by being in major metro areas, which are the most heavily affected by the virus, he said.

“Markets like New York, Chicago and Los Angeles have some of the most luxury and upper-upscale supply; they also had some of the highest number of COVID-19 cases, so it’s not surprising to see those occupancies much lower,” he said.

The economy chain scale saw occupancy exceed 45% for the same period, Lynch said. Hotels in this chain scale have benefited from interstate demand as people in job positions such as truck drivers that are still on the move.

There’s also been a shift in demand from high-end to low-end hotels from 2019 to 2020. In May 2019, luxury and upper upscale accounted for 16% of all rooms sold that month while economy and independents made up 39.4% of all rooms sold. In May 2020, luxury and upper-upscale hotels made up 7.1% of all rooms sold while economy and midscale properties accounted for 49.6%, STR data shows.

The economy segment has also sustained revenue per available room throughout the pandemic while luxury hotel RevPAR has fluctuated.

STR data shows that luxury hotels reported RevPAR of nearly $100 in March, but it dropped to $15.70 and $32.79 in April and May, respectively.

Economy RevPAR has hovered higher than $21 to $25 for March, April and May.

Source: STR, © 2020 CoStar Realty Information, Inc.

There were signs occupancy was slowly returning leading up to the Fourth of July holiday, but that trend seems to have fallen off, Lynch said.

For the week of 4 July, properties did not perform as expected and chain scales saw occupancy that was flat or down from the previous week, he said. Similar declines were seen for the week of 11 July.

Pipeline
The luxury chain scale is expected to see strong supply growth, according to May 2020 numbers, but the percentage of existing supply could be slightly inflated since temporarily closed hotels are taken into consideration, Lynch said.

There are approximately 15,000 rooms in construction in the luxury segment, which accounts for about 23% of existing supply.

“The real story there is a difference in trend in luxury properties,” he said. “I believe we’ve really started slowing down on building luxury boutique-type properties, and everyone instead is going for the massive Las Vegas-style, 500- to 1,000-room luxury properties.”

He said luxury hotels are expensive to build and hard to maintain, so many developers have wanted to add more rooms to make up for the cost, “which is why we see such a drastic increase in the total number of properties.”

Source: STR, © 2020 CoStar Realty Information, Inc.

There are only 3,654 economy rooms in construction, according to STR.

Projects in 2020 have stayed in the pipeline longer than expected, which could also account for the influx in luxury.

“There’s usually an 18- to 24-month construction period before opening, but hotels are staying in that a little longer, and a lot of it is due to FF&E delays,” as a lot of it comes from China, Lynch said.

Deliveries from China were put on hold or delayed because of the lockdown, he added.

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