Hospitality Development After Covid-19

It goes without saying that the world is grappling with a monumental challenge with COVID-19. While the virus has impacted all economic sectors to some degree, the hospitality sector has been dealt a massive blow due to the near halt in both leisure and business travel as well as large gatherings, such as business conferences. This is due to both government regulations and private safety decisions. While it may be difficult to see past the immediate virus-induced downturn, it is important to look towards the future of the sector and to begin planning to take advantage of present opportunities. Arizona’s market was strong before the crisis, and it will recover once the virus fades.

It is vital to focus on the predominant underlying market trends that existed before this crisis: the generational shift away from the purchase “things,” and towards the purchase of “experiences:’ This trend bodes well for both recovery and future growth, especially given the likely pent up demand for vacations and travel which awaits the inevitable vaccine.

The National Hospitality Industry
Before looking at the Arizona market, it is important to understand changes in the national hospitality market to better understand the general trends that will impact larger hotel chains and possibly have ripple effects in Arizona.

McKinsey & Company released a report looking at the hotel industry and made projections about the industry’s future recovery following COVID-19. Based on the feedback from industry executives, the national hotel industry is anticipated to recover to near 2019 revenue per available room levels by the end of 2023, with projected recoveries ranging from -20% to +2% by 2023.1 McKinsey ‘s more bullish models puts the industry at near-recovery by end of 202P.

Looking at sector-specific recovery, the business sector can expect a much faster recovery for client site visits, as low numbers of travelers help companies relax their travel restrictions. What will certainly take longer to recover-likely until there is a widely available and effective vaccine-are business conventions and other large-scale business gatherings.

Turning to the leisure market, it is likely that regional travel will recover more quickly than international travel. For us here in southern Arizona, this means that “driving distance” locations like Tucson and Phoenix-area resorts or San Diego will be likely targets for those venturing out early in the recovery process. However, as individuals feel more comfortable traveling further distances and committing to longer trips, there is reason to expect a full recovery. There is also likely a pent-up demand for delayed vacations and getting out of town.

Lastly, recovery will not be completely even across hotel price points as luxury hotels will recovery at a slower rate than economy hotels, and different locations will certainly recover at a different rate than others. For instance, one will not expect Las Vegas hotels to recover at the same rates as Reno, so those with stronger markets going into the crisis can presumably expect quicker recovery. Luckily, for southern Arizona, we had a strong, growing economy moving into the crisis.

Arizona’s Strengths
Arizona is in a uniquely strong position to recover from this crisis. While the short-term outlook remains heavily reliant on vaccine and government support to get through the COVID pandemic, there is every reason to have confidence that Arizona will return to its strong pre-crisis growth.

In its June 2020 market report on the Phoenix metro area, Moody’s Analytics referred to Phoenix as the “strongest in the west:’ 3_ Phoenix retained jobs at a far better rate than other western metropolitan areas. Specifically, based on data from April, the month following Arizona’s shutdown, Phoenix had a year over year job loss rate of 7.6%.1 Compare this to job loss percentages of San Francisco at 13.5%, San Diego at 12.3%, Los Angeles at 14.5%, Portland at 12.5%, and Denver at 9.9%.,; Impressively, Phoenix ranked 3rd strongest out of 82 ranked metro areas. i;

Focusing on Phoenix’s hotel industry, 55.2%, or 90,500, of Phoenix’s job losses were in the leisure and hospitality sector.1 This large percentage of job losses is telling because it again points to a virus and government policy induced downturn, not a fundamental or market driven downturn. Once the crisis passes, Arizona is primed for a quick recovery due its inherent economic strength.

Standing to benefit from the return of leisure travel in southern Arizona is OpWest Development, helmed by Tyler Kent. OpWest is currently developing two large projects, one in Tucson and one in Phoenix. In Tucson, OpWest is converting eight floors of the One South Church building into a new downtown hotel. Simultaneously in Phoenix, OpWest is building a new Hilton Curio hotel in the Scottsdale Entertainment District. In reference to Arizona’s hospitality sector recovery, Mr. Kent stated:

“Arizona had one of the strongest economies in the nation prior to the pandemic. I think there is going to be a tremendous pent up amount of demand, and when appropriate, people are going to rush back to their lifestyles of going to bars, sporting events, nightclubs, and other social activities. Additionally, both business and leisure travel have been a staple in the American lifestyle for as long as I can remember. People will want to return to that common way of life very quickly when this passes.”

Mr. Kent then brought the point home when he went on to say: “There is no doubt Arizona’s economy will recover. Even despite the pandemic, our state has seen some of the strongest population growth in the country. We see that driving the overall market growth for years to come:’