Hana Insight #21 Hotel Industry Review 2020 2Q

1 Industry/consumer sentiments have recovered as economies restart. 

 • Most countries' restrictions for domestic travel were lifted in May, and international borders are also beginning to open in July which has led to the recovery of manufacturing/services PMI. China, which experienced this process prior to other countries, not only the consumer sentiment but also the real economy showed a clear recovery.

However, countries which have already reopened their economies such as the US, the number of new confirmed cases has started to increase again, recording record numbers. Thus it may take longer than expected to fully resume economic activities to pre-COVID-19 levels.


 2 Flight schedules have been gradually increasing since May and it is expected to show clear signs of recovery in July 

when the border restrictions are lifted

• The flight schedules, which decreased by 68.6% YoY in May, have gradually recovered. Despite restrictions on foreign entry, China recovered in the week of July 13 from -55.1% YoY in February to -14.6% YoY.

As economic activities resume, both Occ. and RevPAR rebounded since the lowest point in April 2020.


  3 Demand for leisure travel to domestic destinations is expected to recover rapidly.

• Driving the growth of the travel consumption sector is leisure travel rather than business travel. The recovery of business travel is expected to be slower than that of leisure travel due to webinars and video conferencing, which have become common since COVID-19.

• Based on RPKs, domestic travel is expected to recover to 2019 levels in 2021 and overseas travel in 2023.


4 China's CRE transaction volume increased YoY in 2Q20, the hotel sector also recovered QoQ.


CRE transaction volume in the US, Europe, and APAC decreased by 73.2%, 33.9%, and 40.8% YoY respectively in 2Q20, which is when the COVID-19 had the greatest effect. The transaction volume for the hotel sector, which was affected the most by mobility restrictions and foreign entry bans, fell by 64.7% in the US, 50.1% in Europe, and 47.1% in APAC in 1H20 - showing the largest decline out of all sectors.


• Although the transaction volume has decreased, the price has not yet been affected. The price per unit and cap rate were similar to those of 4Q19.


As for China, where economic activity resumed first, not only the real economy recovered but also CRE transaction volume turned positive, increasing by 86.3% QoQ in 2Q20 from a decrease of 58.7% YoY in 1Q. The hotel sector was also sluggish YoY in 2Q20, but the transaction volume increased QoQ as larger deals got closed compared to the previous quarter.




5 Market participants perceive the COVID-19 pandemic as an investment opportunity for hotels 

when transaction prices get adjusted.

• In CBRE’s Australian survey of hotel investors, developers and operators, 67% of the participants assumed that the value of hotels will decrease up to 15% after six months and this crisis can be considered as an investment opportunity within the hotel sector. 72% of the participants also said that they would maintain or increase their current hotel portfolio. Looking at different survey results from other regions, the results from CBRE's Australian hotel survey does not differ significantly from the whole market sentiment.

• The current investment environment for commercial real estate is quite favorable with abundant liquidity and low-interest rates. The hotel sector has a positive mid-to-long-term outlook as the values of the younger generations change - the next major set of hotel users - unlike the retail sector which in present, is undergoing structural changes.