August 18, 2021

Forward Bookings Tell Story of Corporate, Group Recovery

Executives Optimistic Over Demand Growth

While U.S. hotels generally have benefited from leisure demand over the summer, hoteliers are watching future bookings for growth in corporate and group demand.

During the recent round of earnings calls, executives at hotel brand companies and real estate investment trusts shared their expectations for the recovery of corporate and group demand over the next several quarters.

Tony Capuano, CEO, Marriott International

“The U.S. is also seeing increasing signs of recovery in both special corporate and group demand. While special corporate booking levels in the first three-and-a-half weeks of July are still down around 45% compared to the same period in 2019, we are optimistic that we have turned a corner. U.S. special corporate bookings rose 23% in June over May, and then rose another 27% in the first three-and-a-half weeks of July, as compared to the first three-and-a-half weeks of June, with improvement widespread across industries and lengthening booking windows. Many of our corporate customers are telling us they are beginning to get back on the road this summer, and we expect to see a step up in business travel post-Labor Day as children go back to in-person learning and workers increasingly return to the office.

“Group bookings in the U.S. have also gained momentum. U.S. group bookings made for all future dates were down 29% in June compared to those made in June of 2019, a large improvement from down 56% in March 2021 versus March of 2019. And for the first time since the pandemic started, group bookings made in the month of June for any time in 2021 exceeded in-the-year bookings made in the same month of 2019.

“At the end of the second quarter, group revenue pace versus 2019 was down 31% for the fourth quarter of this year, improving to down 21% for the first quarter of 2022 and then down 12% for the second quarter of 2022. However, it is still early, and we expect bookings made closer to the event date will increase group revenue on the books for these time periods. Most importantly, our sales team is holding on to average daily rate. ADR for group bookings is almost flat for the fourth quarter and 3% higher for full year 2022, compared to the same periods in 2019.”

Chris Nassetta, President and CEO, Hilton

“In June, business transient room night demand was 70% of 2019 levels with rate over 80% of 2019 levels. We continue to see progress in July, with similar room night demand and rates at 90% of 2019 levels. Group performance in the quarter also improved sequentially driven primarily by social groups, given seasonally higher leisure demand. Overall, group demand increased nearly 20 percentage points sequentially from the first quarter, ending June at more than half of 2019 levels. Additionally, group bookings for next year are at rates above 2019 peaks. …

“Last [quarter] I believe I said we’d be back to 70% of 2019 levels by the end of this year. Obviously, I feel better now. We’re not giving guidance … there’s still enough uncertainty that we want to wait, but we do forecast. … Our view is that RevPAR levels probably in the U.S. and globally are circa 80% [of 2019 levels] versus the 70% I thought before. And in our current thinking, demand levels are probably back to 85%. So, we’re getting there. Things have been coming back more quickly than we would have thought.”

Mark Hoplamazian, President and CEO, Hyatt Hotels Corp.

“Business transient remains approximately 40% recovered globally and demand varies significantly by market. In the United States, dense urban markets such as New York, Washington, D.C., Chicago and San Francisco are still only 20% to 30% recovered, while the majority of other urban markets are trending at a 50% recovery level or higher. Regional businesses and some of our smaller corporate accounts are recovering the quickest, but we're also seeing acceleration in our comp accounts and continue to expect a more robust recovery in the fall. As for group, the trends are very encouraging. More groups large and small have been returning to our hotels and ballrooms.

“Importantly, we're seeing room blocks actualize above expectations and the general size and mix of groups returning to more normalized levels. We continue to expect demand to strengthen into the fall as evidenced by recent booking trends. Group revenue booked in June for events that will occur in 2021 has reached approximately 90% of 2019 levels in our Americas full-service, managed properties with the rate of cancellation diminishing to only a fraction of the levels we experienced just a couple of months ago. As we look to 2022, while group is down in the mid-teens compared to 2019, our leads are tracking 30% higher, which suggests that our pace deficit should improve. Additionally, we're pleased to see group business booked in the second quarter for 2022 at an average rate that is 5% higher than the same period in 2019.”

Jim Risoleo, President and CEO, Host Hotels & Resorts

“Net booking activity for 2022 also improved each month in the second quarter, resulting in 213,000 room nights booked. Our managers remain focused on holding future group rates, thus ADR on the books is slightly higher than the same period in 2019. We now have 2.4 million definite group room nights on the books, which represents 50% of 2019 actual group room nights. For comparison, in the second quarter of 2019 definite group room nights on the books for 2020 were 60% of 2019 actuals.

“Our group bookings for 2023 are echoing a very similar story. As of the second quarter, our net booking activity for 2023 totals 109,000 rooms, which sequentially increased each month in the quarter. In addition, our average rate on the books is slightly above levels for the same time in 2019. Finishing with business transient, we remain encouraged by the sequential growth we are seeing in this segment.

“Special corporate rooms sold in the second quarter were up over 100% compared to the first quarter, driven by growth in Denver, Texas, California, New York, and Atlanta. We are also seeing booking activity come back from traditional top accounts, which include a mix of financial, government, and consulting companies. We continue to believe that business transient demand will evolve post Labor Day with school back in session and the return to office for many companies. We are pleased to have shown a monthly average growth rate of nearly 30% in business transient room nights and revenue since January of this year.”

Jon Bortz, Chairman, President and CEO, Pebblebrook Hotel Trust

“We estimate that business travel doubled from the first quarter and probably recovered to about 30% to 40% of 2019 levels by the end of the second quarter. The airlines who certainly have more visibility than our industry have indicated they believe that business travel will improve to 50% to 60% of 2019 levels by the end of the third quarter, with further improvement through the end of the year and into next year. Their forecast seems reasonable given the bookings we've been seeing and the significant advances each month in urban weekday occupancies, which improved from 24.5% in March to 39% by June, and they look like they'll be up to around 47% or 48% in July. …

“In addition to transient, group is returning as well, and we've begun to see in the month for the month business group bookings in addition to an increasing volume of business group leads, RFPs, site visits, request for contracts and bookings. While we're not yet booking at pre-pandemic levels, activity has been progressing towards those prior levels, and bookings each month for this year and next year are increasing monthly. Yet not surprisingly, group revenue on the books for [the third quarter] and [the fourth quarter] is down about 64% and 54%, respectively, versus same time in 2019 for the same quarters.

“Group on the books for 2022 has been growing. And as of July, we had about 32% fewer group nights on the books, but it's at a 5% higher ADR as compared to the same time in 2018 for 2019. The group deficit is not surprising given corporations are just beginning to get back to their offices and refocus on booking group meetings. This gap should begin to shrink later this year as businesses gain confidence in getting back to normal.”

Thomas Baltimore, Jr., President and CEO, Park Hotels & Resorts

“Furthermore, we anticipate that a large portion of the outbound U.S. travel market, which totaled 100 million travelers in 2019, will choose to focus on domestic travel, driving accelerated growth in markets like Hawaii, South Florida, Southern California and potentially urban markets like San Francisco, Boston and D.C. We are not expecting to see any material changes in business travel until more employees return to the office with some companies targeting after Labor Day for this transition. On the group side, we expect to continue to primarily drive demand from localized short-term SMERF groups in the near term, although there is exciting momentum for the return of large groups as early as late [the third quarter] in certain markets.”

Rob Hays, President and CEO, Ashford Hospitality Trust

“I think we have been pleasantly surprised overall on the rate side. I mean, even as we look into group for next year, we are building the books, ADRs on our bookings in 2022 are actually 4% up over 2019. So, you are seeing I would say very strong rates and overall our corporate rates are not really at much reductions, I think I saw somewhere was around with 85% or 90% of our corporate rates are rolling at levels at or above 2019 levels. So, I think from the rate side overall, we feel very good about where, where things are in, given the rates of what people are paying this summer, I think it even psychologically allows companies in groups to get comfortable with 2019 or better-type rates. So, rate is definitely not where we are concerned.”

Liz Perkins, Senior Vice President and Chief Financial Officer, Apple Hospitality REIT

“With the data available, we have not yet seen significant impact from the recent rise in COVID cases and resulting reimplementation of mask mandates in some markets. These developments are likely to continue to weigh more heavily on urban markets and those with significant dependence on large group and convention business, where we have seen lagging results throughout the pandemic, including year-to-date, but where we have limited exposure. Given the likely trajectory of the continued recovery, we are optimally positioned for continued outperformance, and we remain optimistic based on recent increases in vaccination rates and the resiliency of people's desire to travel when restrictions are lifted and they feel safe to do so, as demonstrated over the last quarter.”

Barry Bloom, President and Chief Operating Officer, Xenia Hotels & Resorts

“So in large part, we don't have a significant number of citywide in our portfolio in general, which is not in those markets — in those types of properties. But we have a few — I guess, without divulging exactly who they are and what properties they're at, a few bellwether groups that we kind of look at within each segment. So we're obviously focused — we look very carefully at the pharma business, which when it materializes is a very strong business for us, and we're watching that very closely because they often have the ability to make decisions to book short term.

“But once they have, they can push business off even in normal times, depending on when they do product launches and things like that. So we've been very careful on that. We're looking at business where we have a large — a relatively large number of international attendees. In general, in our internal forecast, we have watched much of that out, the hotels have watched much of that out because we know that international attendance is certainly not assured at this point.

“So, if that gets to particularly challenging points when we saw this in the early days of COVID as well, companies may cancel their meetings if they're not going to get the international attendees they want, and that goes for both corporate group, but that's particularly notable, I think, for larger association groups that draw internationally. I think those are two good examples of things we're keeping a careful eye.”

Mark Brugger, President and CEO, DiamondRock Hospitality Company

“The outlook for group is equally positive. Incremental lead generation accelerated sharply in the second quarter, with over 11,000 leads for 1.7 million room nights. That's a dramatic increase from the 7,000 leads for 1.2 million room nights in the first quarter. The 50%-plus increase in leads is the strongest we've seen since the start of the pandemic and lead generation is now at 95% of pre-COVID first quarter 2020 levels.

“The group setup for 2022 is good for our geographic footprint. In the quarter, we converted 63% more definite group room nights, with most of the activity for 2022 and beyond, a positive sign of meeting planner confidence is returning. We are excited to see that group rates are 8% higher in 2022 than they were in 2019. Our 2022 is being boosted by the fact that many of DiamondRock's key group markets have strong convention calendars next year, like Boston, Chicago, San Diego and Washington, D.C.”

Jonathan Stanner, President and CEO, Summit Hotel Properties

“Bigger picture and longer-term, we expect corporate transient to come back and look a lot like it was pre-pandemic. The timing of that is the question. It's more of a question of when, not if, in our minds. I think we've kind of as an industry evolved to believe that post-Labor Day, you're going to start to see that comeback more meaningfully. I do think the trajectory of that recovery is going to be more gradual than what we saw on the leisure side. But again, we do expect that business to come back and to come back in a meaningful way. We haven't seen — look market sentiment has certainly changed given what we've seen with the Delta variant. We haven't seen that effect consumer behavior yet and our July results continue to be very strong even through the last week and in week of July. Our August pace has held up nicely. Rates on the books for every month over the next three months continue to increase and our pace looks quite positive. We're certainly monitoring it very closely.

“As we said in the prepared remarks, we wouldn't preclude for there being some plateauing of results as we get into the back half of this month and into the post-Labor Day period. What I would say, again I think encouragingly what we've seen from a pace perspective is where we've seen the best pace of increases in the back half of August, in particular have been in some of our urban markets that have been slower to recover in the markets like downtown Cleveland or downtown Pittsburgh or Boulder, where we see some benefit of return to school. So again, I think it's difficult for us to assess today when exactly the cadence and the sequencing of that business comes back, but we do. Overall, we're optimistic and all the numbers that we have on the books support that. Things are still continuing to improve. …

“There is some small convention and group activity we have on the books in markets like Atlanta, for example, in particular, that are helping improve this space. So again, I would say that what we see in September, and again its early for September, its really early for October, but we are seeing it outside of your traditional leisure demand sources. Labor Day is clearly driven by leisure. But beyond that, the pace improvement is driven by whether its corporate small group or small convention type activity.”

Editor’s note: Chris Nassetta serves on CoStar Group’s board of directors.

Copyright 2021 CoStar Realty Information Inc. All rights reserved. From https://www.costar.com. By Bryan Wroten, Hotel News Now.

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