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Hotels And Retail, Sectors Hardest Hit By Pandemic, Show Signs Of Bouncing Back

The two major commercial real estate sectors hardest hit by the coronavirus pandemic, hotels and retail, are now seeing activity levels on par or nearly on par with before the pandemic, according to separate reports on the sectors.

Empty rooms: The hotel industry has been hit hard by the pandemic, with little help so far from the government.

In the hotel sector, U.S. occupancy came in at 65.4% for the week of June 27 to July 3, hotel data specialist STR reports, only slightly less (10 basis points) than the comparable week in 2019.

The average daily rate was 5.8% higher than in 2019, coming in at $135.35. Revenue per available room was $88.51 in 2021, up 5.7% compared with 2019, according to STR.

Different markets turned in different performances, however. Among the top 25 U.S. markets, only Phoenix (up 14 percentage points to 60.2%) and Detroit (up 13.1 percentage points to 64.4%) saw double-digit increases over 2019, STR notes. San Francisco/San Mateo experienced the sharpest decline in occupancy when compared with 2019 (down 32 percentage points to 50.9%).

Despite some return to normalcy, challenges remain for the sector. STR also reports that gross operating profit for U.S. hotels is now 70% of the comparable 2019 level.

"May was another step forward as more economic reopening and more demand pushed industry-wide profitability further upward,” STR Assistant Director of Financial Performance Raquel Ortiz said in a statement. "... While the improvement is encouraging, many hotels are still experiencing financial difficulty, and even more are seeing staffing issues as evidenced by the stagnant rate of labor costs."

In the retail sector, reports that shopper visits to indoor malls were down just 8.1% in June compared with 2019, which is an improvement over May, when visits were down 8.3%. In April, visits were down 15.7% compared with the same month in 2019, so the second quarter proved to be one of marked improvement for that kind of retail.

As for outdoor centers, including outlet and lifestyle centers, visits were down 5.6% in June 2021 compared to June 2019, reports. June was a worse month than May, but visits were down just 0.7% compared with 2019. 

Retail thus has some momentum going into the back-to-school shopping season, the foot traffic data company predicts.

"The 2019 iteration of Back to School shopping was especially successful, setting a very difficult bar to reach for the 2021 season," Vice President of Marketing Ethan Chernofsky wrote. 

"If the visit gap continues to shrink, it will be an exceptionally strong sign for the retail sector. However, even if the gap increases, it may have more to do with the heights hit in 2019 than the pace of recovery in 2021."