According to Kalibri Labs, the demand for lodging accommodations in the United States declined by 38.4 percent during the first half of 2020 compared to the first half of 2019. Digging into the source of business data we find that the greatest declines in demand occurred within the group market segment. The number of room nights booked through group channels* declined by 51.3 percent during the same period. Because of a 10.6 percent decline in the average daily rate (ADR) charged via the group channel, group revenue declined by 56.4 percent during these six months.
The negative impact of COVID-19 on group demand became more evident during the second quarter of 2020; group room nights were down 78.5 percent and group revenue was down 87.2 percent compared to the same quarter last year.
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Because of their dependence on meetings, convention hotels have been hit the hardest by the decline in group demand during 2020. An analysis of convention hotels found that 56.4 percent of total operating revenue in 2019 was directly related to meeting-related business. CBRE defines convention hotels as properties with greater than 500 rooms and significant meeting space.
For convention hotels, 53 percent of rooms revenue can be attributed to group demand, but the impact extends beyond the rooms department. Within the food and beverage department, an estimated 71.9 percent of total department revenue is earned from banquets, meetings room rental fees, audio-visual fees, and service charges.
Impact in 2020
Because of the severe market conditions, CBRE is analyzing the monthly operating statements of U.S. hotels in 2020. Through August, the CBRE sample consisted of 1,800 properties across the country. Most convention hotels operate in the upper-upscale chain-scale segment, so we believe data for the upper-upscale category serves as a good proxy for the performance of convention hotels.
Through August of 2020, total operating revenue at upper-upscale properties had declined by 60.8 percent compared to the first eight months of 2019. As a result of the decline in revenue, the gross operating profit for the upper-upscale chain-scale segment has dropped 90.5 percent. More importantly for owners, earnings before interest, taxes, depreciation, and amortization (EBITDA) were down 133.9 percent from last year. This implies that the owners of upper-upscale properties are having to pay out of their own pocket to cover debt service.