After buying the Residence Inn and Fairfield Inn & Suites Boston in Waltham for nearly $52 million in March, Denver-based Mission Hill Hospitality cited the growth of the life science and tech industries as a strength of the location. Image courtesy of Island Hospitality

As we approach Memorial Day and the official start to summer, the outlook for the Massachusetts lodging market recovery is coming into focus.  

Boston was amongst the hardest hit regions during the pandemic. The area has historically fared better than most major markets during periods of economic downturn, attributed to a diversified base of lodging demand, driven by education, biotech, finance, convention and tourism. But the severe impact and the slow return of corporate, group and international travel has exacerbated both the initial impact and lengthened road to recovery, as these segments continue to lag leisure performance in the Bay State.  

Through the end of April 2022, STR-compiled data shows Massachusetts as one of 20 states that has not recovered to 2019 performance levels, down 12.1 percent in RevPAR (revenue per available room) against the same period in 2019. Boston ranks 20th out of the top 25 markets in terms of RevPAR recovery, lagged only by Minneapolis, New York, San Francisco, Seattle and Washington D.C. 

Through April 2022, Boston’s RevPAR recovery is 81 percent of 2019 levels, as compared to 90 percent for the top 25 markets combined, while the overall U.S. lodging market fully recovered (up 0.8 percent) for the same period. This is a significant improvement from four months earlier, when the top 25 markets were 33 percent below 2019 and nationally the lodging market was still 17 percent below 2019 RevPAR levels. Although lagging on a year-to-date basis, Boston’s recovery has notably accelerated this spring. According to Pinnacle Advisory Group, March marked the highest RevPAR performance for the Boston/Cambridge lodging market since the start of the pandemic, with average daily rate (ADR) indexing at 100 percent to 2019 for two consecutive months: February and March.  

Lower-Priced Hotels Lead  

As we pivot to forward looking indicators, both the state and Boston are on a trajectory to recover to 2019 levels by next year. Boston’s pre-pandemic RevPAR, according to CBRE’s March 2022 Horizons report, was at $197 and is forecast to recover to $199 by 2023. This is led by lower-priced hotels, which are anticipated to recover this year, followed by mid-priced in 2024 and upper-priced hotels early 2025. In 2024 and 2025, Boston is also forecast to achieve RevPAR growth more than double the national level. 

Mark VanStekelenburg

While the top 25 markets have been lagging the national recovery, according to a recent report from STR published on April 2, their occupancy trended above 60 percent for the previous seven weeks while ADR over the same period surpassed 2019 performance in six of those weeks. Now, as many properties are nearing or exceeding the 2019 performance that we consistently benchmarked to the past two years, asset managers must once again sharpen their pencils.  

Although performance trends for some hotels are on track to recover to historic levels, much about hotels and their operating environments has changed and assumptions and strategies once relied on must now be revisited. As always, level of adaptation will depend greatly on market location and asset class, but in general, there are several key areas of focus which should be top of mind for all, including labor, ramping services and cash management strategies.  

Where Have All the Workers Gone? 

After a long period of layoffs and furloughs, hotels are now struggling to replace team members. The loss of staff has put significant stress on operations, especially for those properties meeting or exceeding peak performance levels.  

In consideration of this new environment, asset managers need to be strategic in how they determine ramp-up of labor and should take this opportunity to reevaluate the overall management structure. What positions can be combined or reduced? For union hotels, is there opportunity to negotiate adjustments to departments or work rules? In each case, modifications should be made collaboratively with management and backed by return-on-investment analyses with impact on future performance in mind.  

Gabriel Stein

As travel begins to increase, many guests are ready to receive the services they once found to be commonplace. However, many hotels simply do not have the staff or cash flow needed to provide all pre-pandemic services, demanding that owners weigh the impact of added costs against poor guest satisfaction scores and reviews. 

Asset managers need to work closely with management to consider what services to reinstate and when, keeping in mind impact on labor and overall profitability. For branded properties, asset managers need to review brands’ stance on brand standards and determine the need to apply for waivers based on what services and amenities business levels support. 

With performance improving, profitable operations should be thinking about how they can get funds back in the hands of ownership. Asset managers should reevaluate opportunities for cash distributions and required working capital, as well as consider a distribution schedule that is manageable in a business environment with many uncertainties remaining. 

Mark VanStelenburg is senior vice president and Gabe Stein is a manager at CHMWarnick.