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

Vaccines are widely available throughout the Middle East, Europe, and Asia Pacific, with more than half of the population fully vaccinated across all but one STR forecast country. 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 allowed short- and medium-haul international travel to recommence across many markets ahead of the Omicron variant emergence. Long-haul international travel will remain muted through 2025 for Europe and Asia Pacific, while the Middle East anticipates full recovery in that segment by 2024 with a boost from EXPO 2020.

The emergence of the Omicron variant and ensuing COVID case surge worldwide caused softened hotel performance across Europe. Many markets reintroduced stricter restrictions or full lockdowns, but the variant’s milder symptoms and the region’s high vaccination rates and speed in producing booster programs allowed recovery to begin as early as late January. While all segments of travel were extremely muted in December 2021 and January 2022, leisure demand started to return across most markets by late January/early February. Minor downgrades in demand have been introduced into Q1 2022 because of the variant, but longer-term recovery trends have largely remained unchanged, and we anticipate strong recovery to pace alongside warming weather.

Moscow demand in 2022 and 2023 has been downgraded amid war in Ukraine, with the strongest impacts anticipated in H1 2022. While Moscow’s historic reliance on domestic demand and Russia’s strong domestic substitution throughout the pandemic may help to mute impacts arising from the crisis, the rapidly increasing severity of the situation presents significant headwinds which we have reflected in the forecast. Downside risks remain elevated for Moscow and other European markets, and we will continue to monitor the situation and address additional changes in the May update.

Most countries across Asia Pacific have shifted to COVID containment policies like those found in Europe and North America, which helped to reduce Omicron impacts across the continent. The new variant has caused downgrades across the first half of the year for many APAC markets, but longer-term impacts to recovery are unlikely. For APAC, the tipping point to a sustained recovery will be the return of long-haul international demand and China’s wider reopening to the rest of the world. As of Q1 2022, China remains committed to a zero-COVID policy, although upside risk exists if a shift in pandemic mitigation strategy were to occur. We anticipate China will reopen borders in H2 2022, which will drive demand into destination markets like Tokyo and Australia.

While the Omicron variant largely halted all types of demand over the early winter months, leisure will be the fastest to return and will remain the primary source of demand in H1 2022, although we anticipate business travel should pick up over the course of the year as the situation continues to normalize.

The long-term hotel industry recovery outlook remains largely unchanged, with domestic demand expected to bounce back in 2022 despite the Omicron variant surge over the past three months. International demand is expected to reach pre-pandemic levels by 2023 in the Middle East, 2024 in Europe, and 2025 in Asia Pacific.

Short-term outlook

The Omicron variant and associated restrictions prompted sharp, short-term downgrades in demand across Europe, although the longer-term outlook across most markets remains unchanged. Demand projections for 2022 have been downgraded through most markets, with additional headwinds forming in the wake of the Russo-Ukrainian war, while 24 of 32 Europeans markets anticipate stronger 2023 demand than in our November 2021 update. While demand recovery continues broadly as expected, average daily rate (ADR) has improved substantially across Europe in part due to supply chain bottlenecks, rising inflation, and a tight labor market pushing increased wages. To that end, 2022 ADR has been upgraded across 28 markets in 2022 and 30 markets in 2023.

ADR recovery has been strongest across Regional U.K. markets due to the aforementioned macroeconomic factors, which have been compounded by Brexit. Additionally, the U.K. has led Europe in shifting to treating COVID as endemic, with the fewest and fastest ending restrictions during the Omicron surge. Coupled with strong domestic demand, this allowed markets outside London to drive rates over the softer winter months. For Glasgow and Edinburgh, the success of COP26 kept ADR elevated after event ended. While restrictions varied across the U.K.’s constituent countries, Northern Ireland’s relatively light restrictions in comparison with the Republic of Ireland helped drive demand and ADR in Belfast. As a result, ADR has been upgraded in all U.K. markets in 2023 and in all markets except London for 2022. Some minor slowdowns in recovery could occur in April following the VAT increase, but risks remain weighed to the upside.

After three months of extreme demand and ADR growth following the start of the long-delayed EXPO 2020, UAE performance has finally started to soften as a result of the Omicron variant and wider global reopening attracting travelers to other destinations. Despite the slowdown, demand has been upgraded in both Dubai and Abu Dhabi in 2022 and 2023, and both markets anticipate full demand recovery this year. ADR, however, has been downgraded in both markets this year, although upgrades to 2023 ADR should see both markets reach pre-pandemic level rates next year.

China’s zero-COVID policy has led to demand downgrades across all markets for 2022, except 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. Rapid recovery trends are reflected in 2023 and beyond, with demand upgrades across all markets in 2023 and 2024, except Hangzhou. Beijing is expected to reduce restrictions now that the Olympic Games have ended, allowing for demand upside in 2022 and beyond.

Seven of the remaining eight APAC forecast markets anticipate slower than expected demand recovery in 2022, largely a result of the Omicron variant and associated restrictions as well as continued border closures. For many APAC markets, reliance on slow-to-return long-haul demand and China as a key source market will slow demand recovery in H1 2022, although wider border reopenings and reduced barriers to entry across most markets offer upside risks as the year progresses. Singapore, notably, has increased VTL agreements substantially over the past few weeks and started to return government-backed quarantine rooms to normal inventory, leading to short-term downgrades in performance as hotels transition back to travel-induced demand. Despite softened demand, ADR has been upgraded for all but three markets as a result of tight labor markets and other supply-side cost pressures.

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 three-year period starting with April 2020, compared with five 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 one than in the following two years.

Pipeline

The analysis on delay rates, first introduced with the November 2020 forecast, remains unchanged from the November 2021 update. 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 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 waxed and waned during 2021 amid Singapore’s shifting pandemic management plans and the emergence of new variants, rooms are currently being released from contract as Singapore extends VTL agreements and simplifies international inbound travel, with contract end expected in Q2 2022. New Zealand quarantine demand should continue through the same period.

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.

Correction

In the November 2021 update, we incorrectly forecasted the Athens market rather than Athens Centre submarket. This error has been corrected in the February 2022 update. The correction reflects a decline in supply and a change in performance for some months. For comparison with previous forecasts, please use the August 2021 version.

Global travel and tourism trends

We estimate that global international travel in 2021 averaged 70% below pre-crisis levels. The emergence of the Omicron variant towards the end of the year dampened travel flows, with many countries reimposing restrictions in response to the outbreak of the new variant. Prior to its emergence, there were positive signs of a gradual return to more travel activity, facilitated by improving vaccination rates in most countries and regions.

Governments and individuals will remain cautious in early 2022, but the evidence suggests that the Omicron variant – although highly transmissible – has been milder than previous variants in most cases and has been contained by vaccines. The roll-out of booster shots combined with significant pent-up demand and a growing desire among travelers to return to more normal behavior will enable international travel to regather pace from Q2 2022, when restrictions are expected to be eased. We forecast that 2022 will see growth in international travel from 2021 levels, albeit to volumes around 40% lower than in 2019 worldwide.

Many Western European destinations benefited from a stronger than expected summer in 2021, due to successful vaccine rollouts, the easing of restrictions and the introduction of the EU Covid Certificate. However, in Q4 the spread of the Omicron variant across the region dampened travel activity once more. Over the year on average, we estimate that international arrivals were 62% below 2019 levels in 2021. Governments reintroduced some restrictions to avoid a significant spike in new covid cases associated with Omicron, but it seemingly has had a less severe impact on hospitalizations and deaths than initially feared. Therefore, we expect a relatively strong recovery from Q2 2022, and over the year as a whole we forecast arrivals will be 20% below 2019 levels.

While most regions started to gradually restart international travel throughout 2021, many Asia-Pacific countries remain largely closed to foreign arrivals with some reimposed tight internal restrictions. Despite a slower recovery for international travel to Asia-Pacific than elsewhere, we expect gradual improvement in 2022 with more countries re-opening and a growing appetite among citizens to resume international travel.

Despite some recovery for international travel, domestic activity remains crucial for the sector in 2022. Domestic nights will regain pre-pandemic levels in 2022 in most major destinations, with global nights to exceed 2019 levels by 15%. While more people will start to look at travelling abroad this year, substitution effects will remain elevated as some uncertainty around border restrictions and reduced confidence (especially amongst the more vulnerable elements of the population) will linger.

There were encouraging signs of increased demand for business travel during 2021, particularly across North America, which should continue in 2022, notwithstanding an initial focus on domestic business trips. There is strong pent-up demand and an ongoing desire among travelers to resume more ‘normal’ travel patterns. Business travel will remain more constrained compared to leisure travel, reflecting normal post-recession squeeze on travel budgets, but we do expect to see more recovery in 2022 as restrictions begin to ease which will pave the way for the resumption of in-person meetings. Events will also start to return this year, though restrictions on event capacity in some destinations (depending on restrictions that are in place) may curtail the pace of recovery.

Recent events in Russia & Ukraine have increased the downside risks for travel recovery this year, primarily for travel to/from these two countries, however spillover effects elsewhere in Europe are also likely – especially for destinations that are highly reliant on travel from these source markets. Eastern European destinations are most likely to feel the pinch as they are typically more reliant on Russia as a source market, but may pick-up some displaced travel away from Russia and Ukraine. Elsewhere, indirect economic effects whereby higher energy prices pushes inflation up even more will put a further squeeze on incomes which may impact travel recovery this year. For now, we see this as a downside risk which we will reassess in the new update.

Global macroeconomic trends (source: Oxford Economics)

We have raised our global CPI inflation forecast sharply – we now expect inflation to average 5.2% in 2022, well above last year’s 4.3%. The squeeze on households’ real incomes from this and faster than previously expected monetary policy tightening has led us to lower our 2022 global GDP growth forecast to 4.0%. The key driver of the upward revision to CPI inflation has been a shift in our oil price forecast. In addition to raising our near-term forecast in response to the rise in the spot price, we now expect a more gradual fall back in the Brent oil price to $80pb by end 2022. Higher energy inflation and upward revisions to non-energy inflation in some advanced economies mean that we now expect CPI inflation to fall more slowly and from a higher starting point than previously forecasted.

This is likely to prompt a faster pace of monetary policy tightening in many economies. In the U.S., we now expect four 25bp rate hikes this year, and we are also penciling in more hikes by central banks in the U.K., Canada and Australia as well as a number of emerging markets. Higher inflation and borrowing costs will squeeze households’ spending power and are key to this year’s GDP growth downgrades.

On a brighter note, the recent fall in global COVID cases is good news, and it supports our existing view that there will be a relatively quick rebound in activity after a weak start to 2022. At a global level, recent COVID developments are not grounds for any upgrade to the activity outlook.

At 4.0%, world GDP growth in 2022 would be much weaker than we anticipated a few months ago, but it is still robust by post-global financial crisis standards. In 2023, world growth is expected to slow further to a still-solid 3.6%.

About STR

STR provides premium data benchmarking, analytics and marketplace insights for the global hospitality industry. Founded in 1985, STR maintains a presence in 15 countries with a corporate North American headquarters in Hendersonville, Tennessee, an international headquarters in London, and an Asia Pacific headquarters in Singapore. STR was acquired in October 2019 by CoStar Group, Inc. (NASDAQ: CSGP), the leading provider of commercial real estate information, analytics and online marketplaces. For more information, please visit str.com and costargroup.com.

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