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Why Investing in Hotels Is a Good Idea Right Now

By Maurie Backman – Nov 23, 2021 at 9:18AM

Key Points

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Hotels could enjoy a nice rebound in the coming weeks, and investors may want to pounce.

It's fair to say that 2020 was a gloriously terrible year for hotels. Last year, hotel occupancy rates reached record lows, and for the first time, the industry surpassed the benchmark of 1 billion unsold rooms.

Thankfully, hotel bookings picked up this past summer, fueled largely by leisure travel. But then, the delta variant hit, putting hotels at risk once again.

Still, despite that, hotels may not be such a poor choice for real estate investors right now. Here's why.

Hotel lobby.

Image source: Getty Images.

Holiday demand could soar

Many people stayed close to home during the 2020 holiday season due to rampant COVID-19 outbreaks and a lack of vaccine availability. And that only added to hotels' woes.

Things are looking different this year, though. AAA predicts that Thanksgiving travel this year will largely return to pre-pandemic levels, with 53.4 million Americans expected to leave their homes and travel for the holiday. That's a 13% increase from 2020 -- and a level that's just 5% below what AAA reported for 2019. And the more people who make travel plans, the more bookings hotels are likely to see.

A recent survey from Deloitte reveals similar good news on the holiday travel front. An estimated 40% of Americans will travel for the holidays, and one in three will board a flight or stay at paid lodging.

Why the uptick? In many parts of the country, COVID-19 cases are now down from where they were over the summer, during the first major delta variant surge. And COVID-19 vaccines now being on the table for children aged five to 11 could fuel an uptick in Christmas travel, which will also benefit hotels.

Investors should still proceed with caution

The 2021 holiday season could end up being a boon to hotels, especially coming off of a miserable 2020 season. But while things may be looking up for hotels in some regards, the industry, on the whole, is by no means out of the woods.

It's fair to assume that leisure travel will pick up or hold steady throughout the course of 2022. But business travel, a huge revenue driver for hotels, may not return to pre-pandemic levels for years.

At this point, many offices have yet to reopen in full, given the trajectory the pandemic has taken. And if employees aren't even so much as coming into the office, we can bet that it will be a while until companies are putting workers on planes and having them gather at hotels for conferences and meetings.

Furthermore, short-term rental properties remain a big threat to hotels in the wake of the pandemic. These days, many travelers are opting for private spaces, as opposed to hotels where amenities and common areas are shared. And that may continue well into 2022, regardless of how COVID-19 cases trend.

As such, those looking to invest in hotels may want to do so cautiously. And it could pay to stick to hospitality REITs with more leisure properties in their portfolio than business properties.

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