The hotel business is rebounding from the COVID-19 pandemic, which resulted in a collective $111.8 billion loss in room revenue alone during 2020 and 2021 according to the American Hotel & Lodging Association (AHLA). While leisure travel continues to bounce back, business travel has been slower to return; in the same report, AHLA predicted only 58 percent of meetings and events will resume in 2022.
The path to full recovery may be uneven and lengthy, and the challenges created by the pandemic over the past two years will create new hurdles for hoteliers in the year ahead, ranging from financial to operational in nature. Here are three challenges hoteliers are facing in 2022:
1. Competition for assets is stiff.
Despite pandemic-related headwinds, hotel prices are rebounding as pandemic restrictions ease. Price increases are due in part to a slowdown in construction following the onset of the pandemic. Increased demand, plus ample supply of lending and equity, is expected to push hotel sales volume into overdrive in 2022.
Hoteliers are also feeling the pressure to shorten due diligence periods in hot markets. Simultaneously, pandemic-related staffing issues and backlogs can make it harder to perform due diligence at an expedited pace. When negotiating a purchase and sale agreement, all parties should make allowances for delays that may occur due to COVID-19-related closures or limitations.
2. The ongoing labor shortage in the U.S. continues to disproportionately impact the hospitality industry.
In November 2021, many U.S. workers quit their jobs, including restaurant and hotel workers. As travel continues to rebound in 2022, hotels will need to maintain staffing levels that allow them to meet guest expectations. One way hotels may be able to recruit and retain more workers is by offering sign-on bonuses or, over the long term, raising wages. In fact, average hourly earnings for workers in leisure and hospitality have grown 13.6 percent between February 2020 and November 2021, according to the Bureau of Labor Statistics.
As all business owners continue to review and revise their COVID-19 vaccination policies, hoteliers should also consider how these policies could affect hiring outcomes. For companies already struggling from hiring and retention challenges, vaccine and testing requirements can present another hurdle.
3. Until travel demand returns to pre-pandemic levels, some hotels will continue to face financial hardship.
Many hotel owners received some form of loan payment relief due to COVID in 2020 and 2021, but most of that was in the form of deferred payments, meaning it must be paid back. In many cases, with the exception of CMBS loans, lenders have allowed these payments to be added to the end of the loan to prevent the owner from being forced to pay back a large sum right away.
Banks are often willing to work with customers to keep them afloat and stave off closures. However, there are still significant long-term issues facing the industry, and hoteliers with bank loans may find their lenders to be less friendly when discussing a longer-term solution to manage debt until there is a sustained return to travel.
Nevertheless, there are other resources available. Hoteliers may be able to take advantage of relief funds that offer grants to qualified hospitality businesses. While interest rates are expected to rise over the next several months, refinancing sooner rather than later could provide extra savings.
Few industries were hit harder by the COVID-19 pandemic than the U.S. hospitality industry, but there is no doubt it will recover. As hotels enter 2022 in a position far more promising than last year, it is crucial for decision-makers to monitor how COVID’s lasting impacts will continue shaping the future of the hospitality industry.
About the Author
Matthew Lowe is president and shareholder at Jordan Ramis, PC.