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Given the current concerns of many hotel investors and owners to survive the impact of the COVID-19 pandemic, it may seem premature to identify a list of potential hotel markets likely to deliver top quartile RevPAR growth in the early years of the next upcycle. A number of cash-rich investors however, have already turned their attention to the next upcycle and the emerging opportunities it provides. These investors understand that fortunes are made in downturns because fortunes are lost in downturns!

With a strategic outlook and a bias for action these investors remind us of the quote:

“Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed. Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death. It doesn’t matter whether you are a lion or a gazelle, when the sun comes up, you’d better be running.” 1

Whether a lion or a gazelle, these groups are already running and identifying a target list of hotel markets that possess dynamic demand drivers, are slated for compelling RevPAR growth and earmarked for potential investment in the future.

So what can we learn about the recovery phase of the previous upcycles, 2002 – 2005 and 2010 – 2014? The first thing to note from our graph illustrating the dispersion of annual RevPAR growth rates for the top 60 US markets is that the first recovery was “U” shaped while the recovery after 2009 was “V” shaped. It took several years before average RevPAR growth rates climbed into positive territory after September 11. After the financial collapse in 2009 however, average RevPAR across the US jumped into positive territory in the first year of recovery.

It is also worth noting that in all years after the demand shocks of 2001 and 2009, all top quartile hotel markets recorded positive RevPAR growth. The top quartile markets recorded RevPAR growth rates of between 0% and 16.7% in 2002, 2.8% and 11.1% in 2003, 9.4% and 19.3% in 2004. While the top quartile RevPAR growth range was more modest for the years after 2009, the average basis point spread was between 300 and 450, a not insignificant amount in terms of RevPAR growth performance.

So what can we learn about markets that outperformed in the two previous recoveries. Firstly, no market appeared in the top quartile every year for the two periods (2002 – 2005 and 2010 – 2014). Three markets, Oahu, Miami and Nashville appeared about two-thirds of the time, with Oahu and Miami’s top performing years were evenly spread between the two recoveries.

Markets such as West Palm Beach, Charlotte, Houston, Portland and Tampa had above average top quartile performances in both recoveries. The northern California cities of San Francisco, Oakland and San Jose-Santa Cruz all recorded top quartile growth in the second recovery but not the first recovery after 9/11.

Historical Annual Dispersion of RevPAR Growth for the Top 60 US Hotel Markets 1988 – 2019

Source: STR

Based on CBRE Hotels’ latest baseline RevPAR forecasts (20th May, 2020) of -51.9% in 2020, 48.4% in 2021, 29.3% in 2022 and 8.7% in 2023, we forecast the dispersion of RevPAR growth rates across the top 60 markets as illustrated in the following graph. The average decline of -51.9% in RevPAR growth disguises the enormous spread across the top 60 hotels markets. The spread in 2021 is likely to be even greater than the spread in 2020.

Based on our forecasts we believe the absolute range between the highest and lowest RevPAR growth will be -18.4% to -82.8% in 2019 and the interquartile range between upper and lower quartiles, will be -41.3% and -61.5%.

Historical & Forecast Annual Dispersion of RevPAR Growth for the Top 60 US Hotel Markets 1988 – 2023

Source: Hotel Investment Strategies, LLC based on STR and CBRE Hotels data.

So what are some of the characteristics of MSA recession recovery leaders? While a number of MSAs experienced sizable recessions during the national recessions of the early 1990’s and early 2000s, other MSAs escaped recessions altogether during one or both of these periods.

While the global economic downturn of 2008 and 2009 affected every MSA, some MSAs bounced back more quickly than others enabling investors to capitalize on emerging growth opportunities. MSAs with knowledge based economies emerged first, followed by those with industrial economies. The recovery accelerated the fortunes of the most prosperous MSAs and the downturn of the most distressed.

There was also a link between the severity of metro recessions and MSA characteristics. MSA’s with less-educated populations and less elastic housing supplies tended to experience significantly more severe recessions. The depth of the recession can be related to such factors as population, private-sector service-producing employment share, share of population with a bachelor’s degree and housing supply elasticity. Dynamic spillover in economic activity across MSA’s was also a factor.

So the question is, “Are you a lion or a gazelle?


1 “Lions or gazelles?,” in “The other dimension: Technology and the city of London – A survey,” Economist, July 6, 1985.