PRLA Restaurant & Lodging Matters Spring 2020

32 •  PENNSYLVANIA RESTAURANT & LODGING matters  •  Spring 2020 THE LODGING INDUSTRY in the United States and throughout the world is in the midst of an epic downturn. The emergence of COVID-19 in late 2019 in China took hold in the U.S. in early March. The policy response that ensued led to a contraction in overall economic activity; a severe decline in lodging demand followed. This has been exacerbated by the need for social distancing and sheltering in place and, implicitly, not traveling. My former colleagues at CBRE Hotels Research recently estimated that Revenue per Available Room (RevPAR) in the U.S. will decline 46 percent in 2020, with a contraction of almost 80 percent in Q2 alone. Oxford Economics recently noted that the current situation is significantly different from the last two shocks to the American economy (the terrorist attacks of September 11, 2001, which resulted in a massive shock to the nation’s confidence; and, the financial market shock that resulted in unprecedented levels of liquidity and credit stress in 2008–2009). COVID-19 represents a natural disaster that occurred very suddenly and unexpectedly. Kalibri Labs is closely monitoring the speed and severity of the impact on the lodging industry (KalibriLabs.com—COVID 19 Industry Health Dashboard). So where is the hotel industry in the U.S. headed? The reality is that nobody knows; and no one can know until this current episode is history. That being said, it is well understood that changes in the demand for overnight accommodations are closely linked to changes in the economy. Declines in personal income and employment have already contracted at record levels since early March, and these losses are expected to continue in the near term. The consensus opinion from a panel of economists polled by the Wall Street Journal in mid-April 2020 calls for a 4.9 percent decline in gross domestic product (GDP) this year. Encouragingly, this same panel expects GDP to begin expanding once again in the back-half of 2020 and to increase by 5.1 percent in 2021. Should these estimates become reality, lodging demand growth will return. Recent analyses from CBRE Hotels Americas Research indicated that the firm expects the 2023 U.S. RevPAR level to slightly exceed the STR reported 2019 of $86.73. What are the Known Unknowns? The job of forecasting today carries the additional risk of allowing for the unprecedented nature of the COVID-19 pandemic relative to Knowing When You Know What You Do Not Know By Mark Woodworth