More than 70% of governments around the world have introduced various fiscal measures to mitigate the effects of the Covid-19 pandemic in tourism. Most of these were parts of an immediate response to provide financial relief and help businesses survive in the sector, which nearly halved its overall contribution to global GDP to 5.5%, or $4.7 trillion, last year from the pre-Covid level of 10.4%, or $9.2 trillion, a year earlier.
New policies were also approved in a number of countries to prepare for future recovery. Local tourism organisations began to plan ahead, using the crisis as an opportunity to reset strategies and adapt to expected market trends in a post-Covid world. These efforts became more prominent recently with vaccination rollouts in key travel markets, promising the gradual easing of restrictions ahead of this year's summer season.
Destination planning aids post-Covid growth
Governments began to prioritize support for destinations to identify new source markets brought about by the pandemic, find unique selling points, reinvent propositions, and renew local infrastructure to accommodate new customer needs. RLA Global has experienced this trend first hand with a number of engagements, all pointing to government role in overall destination planning becoming more important than ever.
Clear-sighted and well-defined government support will be essential going forward to establish necessary strategic and policy structures for destinations that investors should follow, while providing reliable destination infrastructure that increases investor confidence. Government planning could help future tourism development and generate renewed growth in hospitality when we enter the post-Covid era, hopefully sooner than later.
Investors still tend to play the waiting game
But for now, investors can only speculate about current and future opportunities and are still uncertain about the trajectory of expected market recovery. Tourism investment in general was very hard hit by Covid-19, with global foreign direct investment (FDI) in the sector plummeting by 73.2% on the year to only $9.3 billion in the first half of last year. Global transaction volume in the hotel sector fell by 60% to about $26 billion last year as a whole from 2019.
As prospects for travel are improving with ongoing vaccination, there is optimism regarding hotel investments in the fourth quarter of 2021, with some experts predicting a 35% jump in global investment value to $35 billion this year. Yet good deals are difficult to find as property owners tend to wait for conditions to get better and refuse to significantly cut prices, while investors are looking for bigger discounts. This gap in pricing expectations is still too wide in most cases.
Attractive deals may be just around the corner
Hotel investment remained subdued in the first quarter of this year and real estate analysts don't expect a full recovery before 2024. Lender flexibility and direct financial support from governments helped property owners so far in many countries, but some players say it could be only a question of time for distressed hotel deals to hit the market. Potential interest is high from investors, having accumulated significant dry powder since early last year.
One factor investors will look at in the future is the source markets for resorts and destinations in the post-Covid world and how these markets have been affected, primarily by airlift and new customer expectations. Assets in less dense markets and resorts accounted for 21% of global hotel investment activity last year, two times higher than the pre-Covid proportion in 2019.
Another important factor shaping future investment will obviously be the availability of good deals, with discount rates possibly as high as 30%. Such opportunities could finally materialize this year if property owners happen to have a worse-than-expected summer season and governments decide to reduce or discontinue existing Covid-related subsidies, grants and incentives.
Geopolitics is another major, dare we state, increasingly dominant element affecting market certainty. It unquestionably is the elephant in the room in many cases, playing havoc with all stakeholders and damaging the tourism and hospitality industry food chain, from top to bottom.
But all in all, there is no doubt investors will see attractive opportunities coming their way. They just need to be patient and maintain a razor-sharp focus on what types of assets they want to own and operate based on location, availability of debt financing and likely post-pandemic performance.
About the author: Roger A. Allen, RLA Global Group CEO
Roger is the Group CEO of RLA Global and brings a no-nonsense approach to the leisure industry, which is based on a proven track record of representing owners and operators best interests. Roger has worked with many of the leading real estate developers, entertainment venues, hotel operating brands and most influential hotel owners around the world. Furthermore, successful ongoing engagements with government entities and high net worth individuals keep him fully engaged with the day-to-day project development responsibilities.