Market Forecasts, produced by STR and Tourism Economics, provide you with the insights needed to anticipate future performance. Based on the industry and economic assumptions below, the latest forecasts are available for purchase here.
Vaccine assumption and recovery
While the overall pace has slowed, vaccines are widely available throughout the Middle East, most of Europe, and parts of Asia Pacific, with more than half of the population fully vaccinated across all but three STR forecast countries. The strength of vaccination programs has allowed most markets to reduce or eliminate COVID-19 restrictions, which has increased the pace of recovery and bolstered domestic travel. Vaccine passports, vaccinated travel lanes (VTLs), sandbox schemes, and reduced or eliminated quarantine requirements for vaccinated travelers have allowed short- and medium-haul international travel to recommence across many markets. Long-haul international travel will remain muted through 2025 for Europe and Asia Pacific, while Middle East anticipates full segment recovery by 2023 as EXPO 2020 has bolstered long-haul international inbound travel.
After a strong summer and moderately successful “conference season,” rising COVID caseloads across Europe have prompted renewed restrictions. We have assessed the risk of additional restrictions being implemented at a market-level and have assumed that no long-term lockdowns will take place. We anticipate moderate impacts to travel in the short-term but longer-term resilience, with recovery expected to pace back on track in early 2022. The U.K. remains unlikely to introduce new restrictions and is benefitting from a stronger booster program compared with other European countries. Furthermore, reopened borders with the U.S. as well as lockdowns in mainland Europe could strengthen U.S. inbound travel and domestic demand.
While some countries, such as Indonesia and Thailand, continue to lag in vaccination distribution, rates have picked up significantly across Asia Pacific over the past quarter, and most countries have shifted to COVID containment policies like those found in Europe and North America. The shift in pandemic mitigation strategy coupled with plans to reopen to intra-regional and international travel will help drive recovery in 2022. China remains committed to a zero-COVID policy, and in doing so, has increased restrictions and lengthened lockdown periods across many markets. With the 2022 Winter Olympics approaching, Beijing is set to remain under strict restrictions through February 2022, and inbound international travel is not expected to resume until the second half of 2022.
Leisure remains the primary source of demand across most markets, although business demand improved across Europe and the Middle East over the traditionally corporate-centered autumn months.
The long-term recovery outlook remains largely unchanged, with domestic demand expected to bounce back in 2022. International demand is expected to reach pre-pandemic levels by 2023 in the Middle East, 2024 in Europe, and 2025 in Asia Pacific.
While we have taken into consideration increased restrictions in Europe, these forecasts do not take into consideration the release of the Omicron variant, as it had not been widely announced at the time of update. It is too early to comment on the impact, but we would estimate that, as our forecasts assume, no long-term restrictions will be put in place and therefore most of impact will be seen in short-term performance. More will be known about the impact of this new variant in the coming weeks, and the forecast update in February will be reflective of that new information.
Short-term outlook
For most of Europe, renewed restrictions have prompted short-term downgrades in demand. A strong summer mitigated some of the impact, with just nine of 32 markets projected for 2021 demand levels below expectations set this past August. While the impacts are expected to be short-lived, 2022 demand was downgraded for 13 markets because of the winter case rise. ADR has been upgraded across 19 markets in 2022, supported by stronger historical performance and rising costs.
Strong domestic and leisure demand, alongside the return of some corporate travel, allowed for upgrades in all U.K. markets except the airport-adjacent Heathrow and Gatwick. While demand has been strong, ADR has largely driven U.K. recovery over the past several months, as labor shortages, supply chain bottlenecks, and rising inflation have prompted rates to grow. As a result, ADR has been upgraded in all U.K. markets through 2023. While these factors have outweighed any impact of the October 2021 VAT increase, some minor slowdown in recovery could occur in April, with impact primarily concentrated in regional markets.
After a year-long delay, EXPO 2020 kicked off a six-month run at the start of October, and the event’s success has led to significant improvement to Dubai’s outlook, with strong ADR pushing RevPAR recovery from 2024 to 2022. Reduced restrictions and knock-on impacts from EXPO have led to modest upgrades in Abu Dhabi as well.
China’s zero-COVID policy has led to substantial demand downgrades across all markets in 2021, particularly Olympic host, Beijing. While the country has historically bounced back rapidly, strict restrictions and tight border controls are expected to remain in place through the first half of the year, which means demand downgrades across six markets in 2022.
For the rest of Asia Pacific, forecast updates are mixed, with the return of all-important MICE demand strengthening Mumbai recovery, and continued government assistance helping drive Singapore demand. While a rapid rise in vaccination rates allowed an end to lockdowns in New Zealand, Australia, and Japan, the slow reduction of restrictions and lack of business and international travel have prompted minor downgrades in short-term demand. Once again speaking to the uncertainty around Omicron, Japan announced the tightest restrictions thus far with its borders closing to all foreign travelers.
Supply Methodology
Forecast uses Total Room Inventory (TRI), which assumes no temporary closures related to COVID-19 and accounts for all available hotel rooms in the marketplace regardless of operational status. For historical data, all rooms that we know to be closed have been added back into supply with “0” demand and “0” revenue. An exception has been made via a permanent closures analysis (see next point).
Permanent closures
No changes have been made to the methodology compared with the February 2021 forecast. The methodology compares current performance for each market against the worst period of the Global Financial Crisis (GFC) to determine the extent to which hotels are more adversely impacted by the pandemic. This is then applied to the permanent closures observed during the GFC period to determine a new rate of permanent closures during the pandemic. Closures are assumed to take place over a 3-year period starting with April 2020, compared with 5 years during the GFC. Half of these closures are assumed to occur in the first year while the remainder is spread across the following two years. All permanent closures that have occurred to date have been removed.
In Tokyo and Dubai, respective hosts of the Olympics and EXPO, the phasing of these closures was adjusted to expect a lower weighting of closures in year 1 than in the following 2 years.
Pipeline
The analysis on delay rates first introduced with the November 2020 forecast has been refreshed. Delay rates were calculated for all markets based on delays observed since the pandemic began. These rates determined the proportion of new rooms from the pipeline that are likely to be delayed in the near term. The delay rates have been applied to pipeline rooms scheduled to open between Q4 2021 and Q1 2022 with opening dates pushed back to the following 12-month period (April 2022 to March 2023).
For those projects in earlier stages of development (i.e. planning and final planning), a higher probability of abandonment is applied, and therefore reduces the future supply expected to enter the market in the long term.
Quarantine rooms methodology
STR’s methodology does not include rooms sold within hotels that are entirely rented or leased out to a Health Organization or Government Agency for quarantine purposes. Singapore, Australia, and New Zealand are exceptions to this guideline and these regions include historic and forecast quarantine demand in market-level performance. Future demand expectations consider existing contracts and the length that they are likely to be in place.
In Singapore, the government contracted with multiple hotels, resulting in high occupancy rates albeit at a lower ADR. While quarantine demand declined over the summer amid reduced restrictions and a shift in Singapore’s pandemic management plans, increased prevalence of the Delta variant led to additional lockdowns in Q3, and we now expect that this contract will continue until Q2 2022 but in a lesser capacity with rooms released gradually as international demand starts to return. New Zealand quarantine demand should continue through the same period, and Australian markets anticipate quarantine demand ending by year-end.
Within STR’s methodology, if a hotel is partially open for quarantine, its rooms are included within market supply as in Abu Dhabi, where hotels can accept quarantine and normal demand.
Events
As in previous updates, we have accounted for canceled and postponed events in each of the markets. Attendance—as events continue to resume—is also assumed to be lower than in normal times, as GDP and income losses endured during the pandemic will constrain travel budgets in the near term.
Global travel and tourism trends
Vaccination progress has enabled the easing of restrictions and the reopening of borders in many countries, paving the way for greater normalization and recovery for international travel. We expect global international arrivals to be 68% below 2019 levels in 2021 and that full recovery will be achieved by 2024.
Travel restrictions and policy responses to vaccines and infection rates will determine the speed of recovery and continue to vary across the globe. Our baseline expectation for policy easing and travel recovery remains linked to vaccine timelines and the rate at which countries are able to fully vaccinate their populations. An uneven spread of vaccine timelines remains a major downside risk. Widespread reintroduction of restrictions in countries to counter a sharp uptick in cases numbers—as has been witnessed across a number of countries in Europe in recent weeks—represents further downside risk.
Europe and North America are leading in terms of vaccination progress, but Asia Pacific and Africa are encountering much slower progress. This disparity can jeopardize travel recovery due to the inter-connectedness of countries. Strong vaccine progress is good news for European and North American markets, but the lower rates of vaccination in other regions will impede recovery as restrictions will be required for a longer period, and visitor arrivals from these regions will face a slower recovery.
Across Asia Pacific, a zero COVID-19 policy has been more prevalent, necessitating strict border restrictions and the tightening of restrictions as soon as COVID-19 cases are detected. In contrast, many countries have favored containment policies helped by high vaccination rates, this has been exemplified across Europe.
Domestic substitution has remained strong throughout 2021, accounting for 88% of total domestic guest nights worldwide—up from 70% in 2019. We expect domestic travel to surpass pre-crisis levels by 2022, though as a greater reopening occurs, international restrictions are eased, and there is a further uplift in traveller confidence assisted by improving vaccination rates, we expect the importance of domestic travel to ease from 2022 onwards but shares will remain elevated compared with pre-pandemic trends
International business spend will be slower to recover compared with leisure travel, remaining below 2019 levels until 2026. The more contagious Delta variant has caused the cancellation of several in-person events scheduled for 2021, such as the San Diego Travel and Adventure Show in the U.S. and VidCon US. Businesses remain anxious to attend or set up large business events due to health and safety concerns. Business travel faces a challenging outlook, but we anticipate that domestic business travel will recover ahead of international business travel as international travel demand continues to be affected by constrained travel budgets. More events are being planned, and even with reduced attendance, they are helping to build confidence and re-instil the importance of in-person meetings and events for building connections and encouraging greater collaboration.
Global macroeconomic trends (source: Oxford Economics)
Delta-related disruption and supply chain bottlenecks have led us to downgrade our Global GDP forecast in the past few months to +5.8% in 2021 and +4.7% in 2022. We expect the Delta wave to delay rather than undermine the recovery thanks to higher immunity levels lessening the risk of major lockdowns. In 2022, we expect the strength of global economic growth to be driven by demand-side developments, with household spending representing the key driver. The consumer boom is driven primarily by the advanced economies. Strong labor income growth and easing inflation will be positives, but the boost to real disposable incomes is likely to be broadly offset by a reduction in government transfers to households. The revival is thus predicated on further normalization of savings rates.
The U.S. economy has cooled significantly due to a diminishing fiscal impulse and lingering capital and labor supply constraints. U.S. GDP is forecast to grow 5.5% in 2021 and 4.4% in 2022. However, we remain positive about the outlook and expect slowly improving health conditions, solid household finances, gradually easing supply constraints, a rebuild of inventories, and additional fiscal stimulus to support growth into 2022.
Economic growth in China slowed in August as household consumption was hit by the lingering impact of earlier COVID-19 outbreaks and investment remained weak, though exports surprised on the upside. We expect growth momentum to improve now that the COVID-19 outbreaks in July-August have subsided, but downside risks have risen, stemming from the real estate sector, as well as production cuts in heavy industry and electricity rationing enforced by local governments that are keen to meet energy and emissions intensity reduction targets. We forecast GDP to grow 8.4% in 2021, followed by 5.8% in 2022.
Latest indicators show that the Eurozone has been enjoying solid momentum. After revised GDP growth of 2.2% q/q in Q2, driven by robust expansion in domestic demand, we expect Q3 to follow suit with another good performance. Our forecast has been lifted slightly—we now see GDP growth of 5.1% in 2021 and then 4.5% in 2022.
The Delta variant continues to take a toll on activity and sentiment in many Emerging Markets (EMs). Despite headwinds, we expect growth momentum to pick up in Q4, leaving our GDP forecast for this year unchanged at 6.8%. But a cut to the 2022 outlook for China pulls our overall EM GDP growth forecast for next year down to 5.1% from 5.3% last month.