Colliers report: Previous market disruptions show the hotel sector’s recovery.
New research shows that members of Australia’s Hotel Industry believe it could take three years for revenue to return to 2019 levels.
As part of its Valuation in a Climate of COVID-19, Colliers International analyzed data from the World Travel and Tourism Council Report on Crisis Readiness released in November 2019. This report measured the time it took for markets to recover after significant crises.
WTTC concluded that, after analyzing 90 crises from 2001 to 2018, both at the national and local level, and the time taken for recovery, the average recovery time for disease outbreaks such as MERS, Zika, and Ebola was 19.4 months.
A glance at
- Colliers’ latest report, Valuation in a Climate of COVID-19, draws on the data World Travel and Tourism Council Report on Crisis Readiness, released in November 2019, to provide insight into how long markets can recover from a major crisis.
- Colliers International Hotel Valuations’ National Director Michael Thomson says COVID-19 is “nothing close” regarding market disruptors.
- Mr. Thomson said that quantitative and qualitative tools could be used to ensure accurate hotel valuations during the pandemic.
- Michael Thomson, Colliers International Hotel Valuations’ National Director, said the current pandemic posed a new market challenge.
- He said that despite tracking previous market disruptors, including the SARS coronavirus, there has yet to be anything compared to COVID-19’s impact.
- Many factors will influence the recovery time from COVID, not the least of which is the discovery of vaccines, with around 30 in the trial stage globally.
- “However, current thinking amongst various industry participants suggests it will be at least three years before we see revenue levels comparable to 2019.
- This model assumes that all state and international borders will be opened in 2021.
- Mr. Thomson said that the Colliers report recognized the difficulty of valuing hotels fairly and objectively when trade was heavily impacted.
- He said, “We think there are quantitative and qualitative tools we can use to ensure hotel valuations stay accurate in these uncertain times.”
- Quantitative sources include our internal benchmarking model and client trading accounts. We also track other statistical sources, such as passenger numbers at state capital airports and transactional activity.
- The discounted cash flow valuation is the best approach in a market that is difficult to predict. The future income should be projected over ten years, and the benchmarks used for the longer term will smooth the volatility in the short term.
- Christopher Milou said that the research allowed for a better-informed approach to the valuation process. At the same time, he acknowledged the market had to operate under a climate of significant restrictions, such as the closure of state and international borders and the social distancing restriction.
- He said: “Our opinion is that any value decrease likely comes from the market accepting a reduction in earnings due to COVID, rather than evidence that the market has significantly increased the risk associated with hotel investments.”
- There are signs that capitalization rates will increase shortly as finance costs remain at historic lows.