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The post-corona hotel industry

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The hotel industry is one of the industries to take the brunt of the coronacrisis. Although the full extent is still unknown to us, we have made a more detailed analysis of how the coronacrisis has so far affected the Danish hotel industry. In addition, we venture a cautious guess about the future industry outlook.

Coronapandemic taking its visible toll

Since the outbreak, COVID-19 has had both economic and humanitarian consequences around the world, with efforts to contain the spread restricting our behaviour and freedom. Indeed, the world has largely locked down, permitting neither inbound nor outbound travel. The same applies to Denmark, where three days after the official outbreak announcement date, 11 March 2020, the government passed a bill to refuse foreigners without a recognised purpose entry into the country.

This sent shockwaves through the hotel industry, one of the industries to suffer the worst blow during the coronacrisis. The absence of tourists, business travellers and conferences has rendered hotels vacant, with hotel staff sent home. Benchmarking Alliance data from this year to date show that Danish hotels report of average occupancy rates of 28.8%, which is in stark contrast with the 66.4% recorded in the same period last year.

More than anything, the closing of borders has seriously affected hotels. As many tourists would probably have cancelled travels of their own volition due to corona, however, the closed border has not been the only decisive factor putting a stop to tourism in recent months.

As COVID-19 has hit the hotel industry hard, we today see the effects feeding through to the hotel property market, with multiple projects put on hold and transactions not taking place.

H1 2020 in the hotel industry

The global lockdown continues to severely impair occupancy rates in Danish hotels.

On 30 January 2020, WHO declared a state of emergency because of COVID-19. However, not until end-February did Danish hotels see any significant changes in occupancy rates. As from end-February, when the first Danish COVID-19 case was detected, and until 14 March 2020, when the border closed, occupancy rates gradually dropped, in the period on average standing 30% below the levels recorded in the same period last year. However, in the period between the closing of the border and until 8 June 2020, occupancy rates plummeted relative to the same period last years, with some 90% of occupancy gone.

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The same trend applies to the average revenue per available room (RevPAR), in the period from the closing of the border until 8 June 2020 plunging by more than 90%, equivalent to a drop from DKK 608 in the same period last year to DKK 51 on average this year.
This shows that apart from a steep decline in the number of bednights, room rates have also been cut, further deteriorating hotel revenues.

 

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The fallout in the hotel industry from the coronacrisis is clearly illustrated in figures 1 and 2. So far, there have been no bankruptcies and only relatively few major rounds of layoffs among Danish hotels, all things considered. This is mainly due to the massive stimulus packages introduced by the government in recent months, now extended to remain effective throughout August. How the stop to these stimulus packages will affect the hotel industry widely depends on how quickly hotel guests will return. 

Post-corona return of hotel guests 

In the current scenario, both Denmark and most of Europe are in the controlled reopening stages, once again making it possible to cross national borders. The big question therefore remains on which scale tourists, both domestic and foreign, as well as business travellers will return and how earnings are expected to develop in the months and years ahead. 

At the moment, most business travellers are to some extent again allowed entry into Denmark, just as tourists from Germany, Iceland and Norway may go to Denmark for their holidays, albeit subject to a number of restrictions. Restrictions in tourist arrivals are expected to cause the number of foreign visitors to plummet in the summer season. In addition, it remains unclear to which extent a wider band of foreign tourists will be allowed entry in the late summer months.

Even in the event of wider reopening on 1 September or before, the number of international tourists is still expected to be significantly below the pre-corona number in the short term. For instance, air traffic remains highly limited, and even assuming an increase in demand due to more borders opening it is still uncertain how people will respond to the possible risk of being infected during long-distance flights. Taking into account also possible price hikes on airplane tickets, we believe that the first tourists to resume pre-corona travel patterns will be mainly those that go by other modes of transport.  

However, not only foreign guests are subject to restrictions in terms of entry into Denmark. Domestic tourists hoping for a holiday abroad in the coming months are according to effective government recommendations only left with a limited number of holiday destinations, namely Germany, Iceland and Norway.

We therefore expect to see a surge in domestic tourism in the months ahead, which may serve to counter the anticipated decline in bednights due to the reduced number of foreign tourists. Although many will presumably settle for a holiday at home and put off foreign travels to the autumn or next year, we expect to see bednight growth on account of an increase in the ranks of domestic tourists in the next couple of months relative to the same period last year.

Apart from limited transport options and closed borders, the coronacrisis has also made many businesses increase their cost focus, e.g. downscaling the need for cross-country business travels. At the same time, many businesses have been required to embrace new technologies, often successfully so, to keep the business afloat via telecommuting, as most countries affected by COVID-19 have sent home employees with some kind of arrangement in place. Broadly speaking, the factors outlined above may turn out to have a structural effect on the demand for business travels, reducing the demand for hotel rooms among this target group.

Industry outlook for the coming years

A prognosis for hotel industry trends in the coming years hinges largely on parameters as of the time of observation. Based on the assumption that the current scenario continues, with COVID-19 being increasingly contained in Denmark and in Europe alike, we foresee the following developments in the ranks of visitors in the years ahead. 

Hotels that are predominantly tourist hotels, attracting both domestic and foreign guests who prefer to travel by car in their holidays, are expected to see a sharp increase in the number of guests in the coming months. However, room rates are expected to be below 2019-level. In addition, we expect a lag in business travels to affect occupancy rates in the more immediate term. As from 2021, we expect hotel occupancy rates to recover further, approaching 2019 rates. This is partly due to the fact that Denmark will host four Euro 2021 games as well as the opening stage of Tour de France in Copenhagen. We believe that mainly domestic tourists will drive up occupancy rates whereas foreign tourism is expected to remain affected by limited air traffic and presumably more expensive airline tickets. In addition, several conferences have been rescheduled to take place in 2021, and we therefore expect the MICE segment to pick up relative to 2019.

UKPULSQ2Art3Fig4Tabel

 

In 2022, we expect European holiday guests to return on a major scale. In addition, we expect MICE activity to rebound to 2019 level.

As from 2023, we expect the number of hotel guests to have returned to 2019 level, possibly with an uptrend in the number of domestic and European guests. However, as mentioned we expect a certain structural downtrend mainly in the number of business-related bednights. 

 

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After the completion of this article, the Danish government has announced that effective 27 June 2020, it is again possible to travel to all EU and Schengen countries, except for Portugal and Sweden.


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Peter Winther

Executive Director | Partner | MRICS

Copenhagen

Peter is Executive Director and heads Colliers’ Danish Investment & Capital Markets teams. Peter provides strategic property consultancy services and facilitates the sale of commercial and investment properties, including hotels and shopping centres, as well as property portfolios and companies.

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