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By Ken Beierlein
Leisure-focused lodging operators, taking advantage of flexible work, are seeing a robust recovery, while major metro “business meeting” operators trail.
Over the last several years, many white-collar workers in the U.S. utilized flexible work arrangements to spend time away from the office. And many pre-pandemic “road warriors” discovered they could still close the deal with fewer face-to-face interactions.
In both cases, time spent at desks, offices, restaurants and hotels in (typically) major metro areas has declined, while time spent in more leisure-oriented locations has increased. There is no clearer evidence of this change in habits than in the recent performance of lodging operators.
While industry-wide revenue per available room-night (RevPAR, a commonly used lodging performance metric, measuring average revenue per room) in the U.S. has begun to exceed 2019 levels as of 3Q22, reflecting the widespread removal of COVID restrictions, leisure-focused markets including Miami, Tampa, Phoenix and San Diego are leading the way with +20% or greater growth, while major metro “business focused” markets including San Francisco, New York, Chicago, Washington DC and Minneapolis are still registering declines (and often substantial declines) compared to a 2019 baseline.
Travelers clearly appear to be taking advantage of increased workplace flexibility to take that extra vacation, or to substitute the traditional business meeting with a Zoom call in a faraway location.
As a specific example, consider Park Hotels (PK) and Ryman Hospitality Properties (RHP), two publicly traded lodging REITs. PK is largely focused on major metro city center hotels, while RHP is focused on destination hotels in leisure-oriented markets. PK’s RevPAR in the most recent quarter was -10% versus 2Q19, while RHP’s was +9%.
Throughout the industry, companies with more leisure exposure have generally seen better RevPAR performance, translating into higher profitability, than peers. This has also typically translated into better stock and bond performance.
Monitoring this divergence in the lodging recovery, and whether business activity and meetings in major metros ever fully recover, will remain key to investment performance in the space. We expect relative strength in leisure-oriented companies to continue, as workplace flexibility long outlasts the pandemic.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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