Stumbling Hotel Industry Starts to Regain Footing After Its Worst Year

Blackstone Group Inc. and Starwood Capital Group said Monday they had teamed up to buy Extended Stay America Inc. for $6 billion. In agreeing to make the largest hotel acquisition since the start of the coronavirus pandemic, the firms signaled they expect demand to rise from business travelers.

“The U.S. hotel industry is very slowly regaining solid footing,” said Jan Freitag, national director of hospitality analytics at CoStar Group Inc., a commercial real-estate data firm.

Few expect hotels to return to their pre-pandemic level of business for another two to three years. International travel to the U.S. collapsed in 2020, and hoteliers hold little hope it will accelerate much this year. Demand for conventions and large meetings that have been a staple for many large hotels in downtowns and resorts also looks grim in 2021.

“We do not expect sustained group demand until herd immunity has been reached,” Mr. Freitag said.

Yet there is recent evidence to support that the worst might be behind the industry. U.S. hotel occupancy for the week ended March 6 stood at 49%, the highest since October and just a percentage point lower than the pandemic peak in August, according to hotel data tracker STR. The rate was about 65% in March 2020 before the pandemic hit, STR said.

The Baird/STR Hotel Stock Index, which tracks shares of eight hotel brands and 12 hotel real-estate-investment trusts, jumped 22% in February, compared with less than a 2% increase for the S&P 500. That gain in the hotel index followed a 31% surge in November, amid news of the first Covid-19 vaccine coming to market.

“Stocks are pricing in a more optimistic recovery scenario,” a Baird Equity Research report said last week.

Workers are coming back, too. The leisure-and-hospitality industry added 35,700 jobs in February, the sector’s biggest number since September, according to the Bureau of Labor Statistics.

Leisure travel, often to destinations within drivable distances of large metro areas, started rebounding last year and continues to improve. Texas’s Galveston Island, where 30 million people are within a 300-mile radius, expects nearly full hotel occupancy this week thanks to spring-break crowds, according to Michael Woody, chief tourism officer for the island’s visitor bureau.

More travelers are starting to fly again. Passenger volumes are 40% to 50% below pre-pandemic levels, but airports had their busiest weekend in a year, according to the Transportation Security Administration. Nearly 1.36 million people passed through U.S. airport-security checkpoints on Friday. That was the most in about a year.

“The airport is getting busier,” said Andreas Ioannou, chief executive of hotel owner Orchestra Hotels + Resorts, whose properties include the Hilton Fort Lauderdale Beach Resort. “More people from the Northeast and the Midwest are coming down.”

Hotel owners throughout the country are also reporting more advanced bookings. During most of the pandemic, bookings have been with just a few days notice, often by people who were going stir crazy and needed a break.

Now, hotels such as the Admiralty Inn and Suites in Falmouth, Mass., are taking reservations months in advance. “Some of the weddings that canceled last year have rebooked,” said Eric Zmuda, general manager of the 98-room lodging.

Marriott International Inc.’s group bookings made in January for next year and beyond fetched daily rates 11% higher than business booked a year earlier for stays in 2021 and beyond, according to Stephanie Linnartz, recently named Marriott’s new president. “These are encouraging signs that there is strong demand for travel in future years once real progress has been made in containing the virus,” she said on a February earnings call.

Even for beleaguered business travel there are hopeful signs. The Wednesday-night occupancy rate in the U.S.—a key metric when gauging business-traveler demand—was 46.7% on March 3, compared with 37.1% on Jan. 6, according to STR.

Most of the business-travel increase is from smaller companies, said Michael Bellisario, a Baird analyst. “What you’re not seeing is the large companies, the top business-travel accounts, coming back.”

Still, hotels are reopening anticipating growing demand. In February, only 2.5% of U.S. rooms tracked by STR were closed, down from 18% in late April, the data firm said.

In New York City, large hotels that plan to reopen in the spring include the Peninsula, the Mandarin Oriental, and the Ritz-Carlton overlooking Central Park.

Write to Peter Grant at [email protected]