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The Return of Business Travel Presents Opportunities in Efficiency Hotel Brands

2020 was a difficult year for the travel industry. Business travel was curtailed significantly as the nation struggled to maneuver its way through the pandemic. However, as restrictions are being lifted the country is getting back to business. Delta CEO Ed Bastian, said this week that he expects that business travel is returning in a strong way.

"I think if you take the period from July 1 forward, we're going to see business travel at levels that were consistent with where we were pre-pandemic," he said. "There are so many businesses that need to get back out to their customers that have created new contacts they haven't been able to serve during the pandemic period while they couldn't travel that need to be back out with their teams."

Hotel occupancy to a hit last year. Full-service hotels that catered to leisure travel were the hardest hit. So it's clear why investors stayed away from full-service hotel projects in 2020 and 2021. Efficiency hotels that serve the business community and long-term workers did better. Now we are seeing some impressive data. Morgan Stanley research produced this data below that shows the snapback in business travel we've seen already.

Before the pandemic, I had been very interested in the efficiency hotel space. As we are seeing multifamily cash flow getting squeezed more and more, small efficient brand name hotels become more attractive for their cash flow attributes. This asset class is more sensitive to the business cycle, but investing can be very lucrative when a combination of factors come together like an experienced management team, a growing economy, strong submarket demographics, low fixed-rate debt, and location.


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