HVS

HVS modeled the anticipated RevPAR declines during the COVID-19 pandemic. Based on patterns of recovery following the two most recent recessions, we projected the lodging tax revenues of 24 urban markets in the United States. Comparing these projections to a baseline scenario without the pandemic, HVS estimates combined losses of 24 major U.S. markets could range from $4.0  to $5.5  billion of lodging tax revenues. Lodging tax losses of this magnitude will force bondholders, destination marketing organizations, and other stakeholders to consider steps such as debt refinancing or seeking alternative revenue streams until the hospitality industry recovers from this pandemic.

Introduction

Lodging taxes provide a critical source of support for the convention and tourism industries. Lodging tax revenues fund debt service for the construction of convention centers, arenas, and other public assembly facilities. This revenue source provides a large share of the funding for destination marketing organizations (“DMOs”) and covers the operating deficits of convention center venues. Many communities also rely on lodging taxes for support of the arts, tourism promotion, and other governmental operations. The COVID-19 pandemic has dealt a bigger blow to this crucial revenue stream than any previous event of economic dislocation in U.S. history. HVS set out to quantify this impact, so that our clients in the hospitality and tourism industries can begin to address the issue and shore up their financial positions. It is essential to know the magnitude of the problem if we are going to solve it.

The COVID-19 pandemic will have two types of impact on the lodging industry. First are the draconian travel restrictions that have been necessary to save human lives. These travel restrictions are presently being sorely felt with unprecedented cancellations of conventions and other groups events, the loss of transient lodging demand, and hotel closures. But this impact is expected to be short lived, its duration measured in months rather than years. After travel restrictions are lifted, a second impact will occur as the economy will struggle to regain its footing over the next few years. Projecting the lodging tax revenue impacts of COVID-19 is a formidable task as uncertainty reigns. Epidemiologists, public health experts, and economists hold a wide range of views on the length and depth of the social and economic dislocation.

The HVS annual Lodging Tax Study provides a starting point for our projections. HVS has gathered information on lodging tax revenue collections across U.S. cities. We combined that information with our projections of the performance hotel markets in 24 major U.S. cities. In this report we provide best- and worst-case forecasts of lodging tax revenue from 2020 through 2025. We compared our forecast to a hypothetical base case which reflects a world without the pandemic. We estimate that over the next six years, the combined losses of 24 major U.S. markets could range from $4.0  to $5.5 billion of lodging tax revenues.

Historical Precedents

Before the onset of the crisis, during fiscal year 2019, 24 major U.S. markets generated approximately $3.3 billion in lodging tax.

In a base-case scenario without the pandemic, and based on STR estimates of revenue growth, HVS projects that these 24 markets would have generated nearly $3.37 billion in lodging tax revenues this year.

The performance of the 24 markets during prior economic shocks, provides an indication of how the recovery from the COVID-19 pandemic may play out. The figure below shows the average daily room rate (“ADR”), occupancy rate, and revenue per available room (“RevPAR”) for the major U.S. markets from 2000 to 2019.

RevPAR, the product of average daily room rate and occupancy rate is a standard industry metric that combines the effects of occupancy and average daily room rate changes on hotel revenue performance. Hotel markets show a high degree of volatility during economic downturns, with sudden decreases and gradual recoveries. For example, RevPAR (adjusted for inflation ) in the U.S. urban markets reached a low point of $83.98 in 2009 during the Great Recession but exceeded pre-recession levels by reaching $110.40 in 2014, a five-year recovery period.

Click here to read the complete article.

Logos, product and company names mentioned are the property of their respective owners.

You May Also Like

Fighting workplace burnout in the hospitality industry

Burnout is a health hazard in the workplace and hospitality is more…

Hospitality workwear

Positive Branding is an established workwear provider with a huge clothing range…

U.S. Hotel F&B Performance Increased in 2018

U.S. hotel food-and-beverage revenue per occupied room (F&B RevPOR) increased 2.7% in…

Bennett Hay celebrates a year a success with Guest First Awards 2019

Bennett Hay, the bespoke hospitality company has marked another successful year with…