Hotels suffering big drops in revenue
Some locations in Bay Area may never reopen as lodgings due to virus
Massive losses in revenue have bludgeoned the reeling hotel industry in the Bay Area and California, fresh evidence of the brutal effects of the coronavirus, according to figures released Monday by a top lodging analyst.
The hotel markets in the San Jose-Santa Cruz and the San Francisco-San Mateo regions have been hammered during the months of coronavirus-linked business shutdowns, and the downturns in these Bay Area markets have turned out to be far worse than what’s going on in the rest of California, Atlas Hospitality reported Monday.
“This is as bad as we have ever seen it for the hotel industry,” said Alan Reay, president of Irvine-based Atlas Hospitality. “After 9/11, or even compared with 2009, we have never, ever seen it this bad.”
During the five most recent months — coinciding with extensive business shutdowns ordered by state and local government agencies to combat the coronavirus — revenue per available room, the most widely tracked barometer of the health of a hotel market, plummeted, Atlas Hospitality reported.
“When you look at the decline in revenue, it basically wipes out the finances of almost every hotel property,” Reay said.
In January 2020 compared to January 2019, hotel revenue per available room slipped 1 percent in California, 5.4 percent in San FranciscoSan Mateo, and 6 percent in Santa Clara CountySan Cruz County, according to Atlas Hospitality.
However, from April through August and compared with the same five months in 2019, hotel revenue per available room fell by 65.5 percent in California, 82.6 percent in San Francisco-San Mateo, and 76.9 percent in San Jose-Santa Cruz, Atlas Hospitality reported. The five months in 2020 were all periods of business shutdowns and massive travel restrictions.
The hotel woes are also costing a growing number of workers in the sector their jobs.
Among the notable cutbacks recently affecting hotel and resort operations: Pebble Beach Co., which operates world-famous resort, lodging, restaurant, and golf facilities in Monterey County, recently revealed plans to lay off 500 workers, and warned of more job cuts to come if business conditions don’t improve.
Three operations were particularly hard hit in the Pebble Beach Co. layoffs: Inn at Spanish Bay is cutting 170 positions, Lodge at Pebble Beach is chopping 119 jobs, and Spa at Pebble Beach is reducing staffing by 77, according to an official filing with the state’s labor agency.
“We are concerned that the COVID-19 pandemic and the related economic downturn will continue to have a significant impact on our business for months to come,” David Heuck, Pebble Beach Co. chief administrative officer, wrote in a notice to the state government.
During the 12 months that ended in August, the Bay Area lost 135,500 jobs in the hotel and restaurant sector, a Beacon Economics analysis shows, representing a 35% nose- dive in the number of jobs in that sector. California suffered a 28% plunge in its hotel and restaurant jobs over the one-year period that ended in August.
The biggest hotel and restaurant losses in the Bay Area came in the San Francisco-San Mateo area, with a loss of 47,700 jobs. Hotel and restaurant job losses totaled 36,300 in Santa Clara County and 31,900 in the East Bay.
The sharp revenue declines could force a growing number of hotels to fail or simply decide not to open their doors again as hotels, even after government officials lift coronavirus restrictions.
Pebblebrook Hotels and its 12 lodgings in San Francisco are a case in point. In a July 31 conference call with analysts to discuss recent financial results, Jon Bortz, chief executive officer with Pebblebrook Hotel Trust, sketched out the
company’s approach to its operations in San Francisco.
“We don’t have any plans to reopen any hotels in San Francisco,” Bortz said. “We don’t see right now a recovery in the cards in that city, based upon their approach to reopening.”
At best, the Pebblebrook hotels in San Francisco might reopen in 2021, Bortz told the analysts.
“Some of these hotels will never reopen as hotels again,” Reay said. “They might become multi-family apartment properties.”
A disappearance of hotels could hobble the financial conditions of cities that depend on revenue from lodging taxes because the conversion of hotels to residential properties could erase scarce revenues amid an economic slowdown.
The reliance of hotels in the San Francisco, San Mateo County, and Santa Clara County regions on business travelers is one reason the performance of the Bay Area hotels is so much weaker than is the case in California overall.
“Business travel is pretty much non- existent,” said Dharmesh Patel, executive managing director, Hotels USA, with Colliers International, a commercial real estate firm.
Even amid the massive uncertainties that face the lodging sector, one thing appears certain: The current level of revenue implosion for hotels is unsustainable, in Reay’s view.
“No hotel can withstand this sort of revenue decline,” Reay said.