By: Gary Jones, the CFO of Queensgate Investments
Investors are always looking for new types of investments that can yield reliable returns. Before the pandemic, hotel industries worldwide were booming, and investment in hotels was looking very promising.
With many different investment methods, hotel investors had multiple options to generate a sizable return from hotels. With the possibility of investing in hotel REITs, you don’t have to buy a whole hotel to practise hotel investment.
Investors also believed that hotel investment was very reliable and low risk. These consistent returns were expected because the hotel industry is itself pretty reliable – most people go on holiday and stay in a hotel at least once every year.
Unfortunately, the pandemic has shown us that this may no longer be the case.
Since most of the economies in the world are beginning to recover from COVID-19, it’s clear that the hotel and hospitality industries were among some of the hardest-hit industries.
Many investors are asking if it’s still a good idea to invest in hotels now or in the future. Will hotels recover fully to their levels before COVID, and will they still promise high and consistent rates of return?
These questions will undoubtedly be on your mind if you’re looking to invest in a hotel. To help you answer your questions, we’ve put together some information about the hotel industry and whether it will recover once the effects of the pandemic reduce.
How Did COVID-19 Affect Hotel Investment?
As we all know, COVID-19 caused restrictive lockdowns across the world. Many people had to stay in their homes and could not go out and do their regular activities. Some countries went as far as closing their borders from tourists.
The worldwide lockdown caused little to no demand for hotels and hotel rooms. With barely anyone going on holiday or travelling, there was no need for hotels, and of course, the industry suffered. Hotel occupancy declined by about 40% in 2020.
With revenue coming into hotels, the hotel industry experienced a downturn. Hotel stocks dropped rapidly, and investors started to lose money on their hotel investments. This decline has to lead to many investors pulling out of hotel investment entirely.
Hotel investment was at a historic low in the year 2020. With little to no return on investment and the industry in danger of collapsing, hotel investments were seen as risky.
Will Hotel Profitability Returnto Pre-Covid Levels?
It is not all doom and gloom at the moment. The hotel industry has shown signs of recovery.
Due to lockdowns easing, hotels are beginning to re-open and starting to give out rooms again. Furthermore, people in the UK are now allowed to go on holiday again, and many people are looking to make up for the lost holiday time in 2020. So the demand for hotels has had a big surge in the last few months.
From an investors viewpoint, this is excellent news. Publicly traded hotel companies are seeing a big jump in their stock price. Share prices of hotels increased by 30%-40% from January 2021 to March 2021.
Investment experts like Gary Jones, from Queensgate Investments, believe that this surge may increase – but it depends on the location of the hotel you’re investing in.
Jones states, “The speed of the bounce back will be location specific. Miami, for example, is already shooting the lights out. Business is the best it has ever been, far beating pre-pandemic levels. Whereas most of Europe still lags considerably behind 2019 trading levels.”
Queensgate Investments manages hotels in different parts of the world and their investment experts believe that now is a good time to invest in properties like hotels and resorts. They remind us that investors should stick to the fundamentals of property investment just as they did before the pandemic.
There are many factors to consider here. Your attitude towards risks and the location of the real estate you want to invest in can impact the results of your investments. Different parts of the world are experiencing their own unique wins and challenges – so keep that in mind when considering the options available.
So should you start investing in hotels now or not?
The hotel industry will certainly recover in the next few years. Queensgate Investments recommends that investors consider the amount of equity needed to run a hotel business. Gary Jones expounds on this further, he states, “Most lenders are still nervous lending against hotel assets because of the pandemic, and therefore any person buying a hotel will have to inject a greater percentage of equity into the deal than previously.”
This is an important element to keep in mind when considering investing in hotels this year.
So How Will This Affect Hotel Investment in the Future?
The pandemic damaged a lot of investors’ trust in hotel investment. For most of 2020, many publicly traded and large hotels weren’t even open for business.
Hotel investment was seen as relatively safe and reliable, but it will still be somewhat risky in the next few months. If an investor lost lots of money from the hotel industry, it’s unlikely they will put money back into it straight away!
Hotel investment will start to increase again after it’s clear the industry is on a good path to recovery. So in the next 3-4 years, a steady growth of the hotel industry is expected. With this steady growth, you can also expect a steady increase in investment.
It’s unlikely that the pandemic will permanently damage the amount of hotel investment and the expected returns.