Globally, hotels have been the asset class most impacted by the Covid-19 crisis. Sales of hotels were down by one-half in the first five months of 2020 in comparison with 2019 and just 113 hotels have sold worldwide since the start of April. By way of comparison, more than 850 sold in the second quarter of 2019.
Travel restrictions, the cancellation of major commercial events and the near-shutdown of the global tourism industry have created something of a perfect storm for operators and owners. Moreover, there are no guarantees that it will be business as usual when lockdown and travel restrictions ease, with the possibility of longer-term changes in consumer and business travel trends.
In the U.S., 48 hotels traded from April 1 to June 28, for total transaction volume of $678 million. This is minuscule in the context of a market that has traded, on average, $2.8 billion a month in the last five years. Moreover, few large assets are selling and the average lot size of the traded assets has fallen by a third in comparison with the five-year average.
The scale of the slowdown in Europe is similar and just 36 hotels have traded since April 1. Some large assets have changed hands, which has pushed transaction volumes just north of $1 billion. The Bauer Palazzo, a luxury 210-key hotel in Venice, was bought in May by Signa Group, an Austria-headquartered investor, for $270 million. At this price and at more than $1.3m per key it is the most expensive hotel to trade so far in the second quarter. Only six hotels have sold so far in June, which puts this month on track to be the slowest on record in Europe.
The story plays out in similar fashion in Asia Pacific and only 29 hotels have been purchased since April 1. Very few of the bigger assets have sold and despite the fact the region was the first to experience Covid-19 and many of the largest countries have been out of full lockdown for longer than Europe and U.S., this has not fed through to sales. Some substantial properties are in contract, including the Guoman in Shanghai for a proposed $460,000 per key, but Real Capital Analytics has logged at least three deals that have fallen out of contract since March, so there is no guarantee that they will complete given the current environment.
The latest data from the WHO shows the global rate of infection is still increasing, which suggests restrictions on movement and quarantining rules will remain in place for the short term, at least. With international travel such a driver of hotel occupancy, the longer these the persist, the worse the outlook. Indeed, the IATA forecast that more than 7.5 million flights will have been cancelled between January and July 2020 and global demand from airline passengers will be down by over 50% this year.
In Europe, Greece, Portugal and Spain — countries where tourism is a large component of GDP — have all said they will open up for the summer holiday season so we will get an indication as to the potential scale of a recovery in international leisure travel. But the long-term impact of the virus on both tourism and business sectors is unknown and difficult to forecast. What is certain is that most income-driven investors dislike uncertainty and this will continue to drag on the sector.
To learn more about the data behind this article and what Real Capital Analytics has to offer, visit https://www.rcanalytics.com/.
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