China much closer to recovering ADR than Europe and the U.S.

In April 2020, as part of the significant economic damage caused by COVID-19, hotel average daily rate (ADR) in China, Europe, and the United States dropped 40% below pre-pandemic levels. Since that point, rates in all three regions have improved, but hotels in China are much closer to reaching pre-pandemic ADR.

Demand has steadily (and slowly) increased since April

A deeper dive into the data reveals that growth in ADR is likely driven by parallel growth in demand. In China, for example, demand started to recover only a few months after its low point and has increased consistently since March. By September 2020, demand had reached pre-pandemic levels (same month last year) as near-zero COVID-19 cases have helped sustain the market’s recovery.

Europe and the U.S. have experienced a similar trend since April. In October 2020, demand comparisons in those two regions worsened due to the end of summer travel, lack of corporate/events business and the threat of new lockdowns.

Supply growth may decelerate after the pandemic

Examining the performance of ADR at hotels in China, Europe, and the United States requires analysis of the supply growth trends of the past several years, as new supply impacts occupancy and limits pricing power.

Supply growth in China slowed this year even after demand improved toward pre-pandemic levels. Europe and the U.S. will likely experience a similar trend, due to permanent closures and limited supply growth.

Permanent closures and less new openings have impacted 2020 supply in all three regions. In several key markets in China, the permanent closure rate is around 2%. More significant permanent closure rates (5%+) were observed in key European markets. In the U.S., almost 60,000 rooms have permanently closed in 2020, which was about 1.1% of the existing supply.

Prior to COVID-19, U.S. total-room-inventory supply, which assumes no temporary hotel closures, was forecasted to grow 1.9% in 2021—that has since been adjusted to 1.3%, which indicates a deceleration in supply growth because of the pandemic.

Slowing supply could be directly linked to economic issues that limit the availability of financing for new projects, especially since financing is determined by performance, which currently is not ideal.  

Closing thoughts: 2021 performance will depend on COVID-19 case control

The three regions included in this analysis have handled the pandemic with different levels of strictness. As a result, the U.S. and Europe have been impacted longer. China’s recovery trend lines have suggested that as soon as new COVID cases are under control, regional hotel performance will start to recover.  

In 2021, hotel performance will depend on progress in controlling COVID-19 cases and the effectiveness and distribution of vaccines.