The Hotel Market and COVID-19

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The outbreak of COVID-19, the new coronavirus, is having an impact the lodging industry. Among the first to be affected in our region were properties in and near Downtown Seattle. Hotels that should be running at 70% to 80% occupancy this time of year are more than half empty. Local businesses have cut back or eliminated corporate travel, groups are cancelling planned events, and tourism is nonexistent.

If reports from China are to be believed (a big “if”), the virus appears to have a primary cycle of three to four months, with a few cases in the early weeks, a rapid rise in infections among the most vulnerable populations, and an eventual tapering off. Seattle and King County began feeling the effects in late February, suggesting that the impact will be most severe through April and that there could be a noticeable decrease in new infections by the end of May.

As the virus abates, lodging demand will begin to recover. Business travel will resume first, once local companies are convinced that their employees and visitors are not at risk.

The recovery in leisure travel will be slower, with some tourists returning this summer but others putting off trips until 2021. Many of these guests are attracted by sporting events and cultural activities, and most of these functions have been cancelled. As in past recessions, some tourists will choose to avoid urban areas and instead visit coastal and resort locations, as long as they are virus-free.

Many group events, such as conventions and weddings, are booked well in advance. For this reason, the impact of the virus on group demand will extend out at least two years. Even if a group wished to reschedule later in 2020, the market does not have the capacity to accommodate all of the spring groups during what are typically the busy summer and fall seasons.

In such an environment, how do we move forward? How should hotel owners and managers cope in the coming months? Here are a few suggestions:

– It will not be possible for most hotels to keep their full staff on payroll. Identify those positions that are essential to the operation and keep them filled. Be sure that those who are laid off know they will be welcome back once the crisis abates.

– When temporary furloughs are necessary, continue to pay the medical insurance premiums for affected employees. This could encourage them to return, saving you the cost of a new hire. It is also the right thing to do.

– Ask your lender to waive debt service payments through the summer. In exchange, offer to extend the loan term. Extraordinary times call for extraordinary measures.

– Think twice before reducing room prices as a means of maintaining occupancy. If price were the primary motivation of hotel guests, this strategy might be effective. But if they are worried about the possibility of infection, no discount will be low enough to offset that fear.

– If you operate a mid-scale or budget hotel and are anticipating very low occupancy for several months, consider suspending conventional operation and instead making your property available as housing for residents under voluntary quarantine. Offer low weekly rates and limit housekeeping to linen service. Plan to complete a thorough and well-publicized cleaning of the building once the space is no longer needed.

– King County recently purchased a budget motel in Kent to house residents under voluntary quarantine. If you are considering selling your hotel, local agencies might be interested.

John Gordon
Kidder Mathews

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