Hospitality Hit Hard: What’s Next for Arizona Restaurants and Hotels?

June 4, 2020

Hospitality Hit Hard: What’s Next for Arizona Restaurants and Hotels?

It has been a particularly inhospitable few months for the hospitality industry, as restaurants and hotels in Greater Phoenix and around the state have taken a major hit from the coronavirus pandemic. What is normally a time for bustling activity from MLB Spring Training, festivals, and other tourist activities came and went with barely a whisper.

Stay-at-home orders starting in mid-March put many restaurants in an untenable situation. According to the Arizona Restaurant Association, the state’s restaurant industry lost about $27 million a day from about mid-March through mid-May, shed about 165,000 jobs, and saw the permanent closures of high-profile sites such as Barrio Cafe Gran Reserva. Equally disheartening, many lesser-known restaurants fall into 20 to 25% of small businesses that Phoenix’s Economic Development Department projects will not survive the COVID 19 crisis.

Meanwhile, a nearly complete shutdown of leisure and business travel left hotels and resorts idling. According to the Arizona Office of Tourism, hotel occupancy in the Phoenix region was at 33.6% for the week ending May 16 and occupancy is down 52% year over year. (If you are searching for a silver lining, Phoenix has the 8th highest occupancy rate among the top 25 U.S. markets.) In the Phoenix metro area, the number of “watchlist” hotel and resort properties—designated by loan servicers as potentially not paying their mortgages in full or on time—jumped from 56 in March to 76 during May. Among those added to the list this week was Great Wolf, which recently opened a 350-room hotel and water park in Scottsdale. Thinking outside the Valley, destinations in northern Arizona are likely to be negatively impacted during their own high season, due to a lack of international travelers.

In both hotels and restaurants, loosening of restrictions will be paired with visible symbols of safety such as sanitation, contactless transactions, masks, gloves, and Plexiglas—and say goodbye to buffets in either type of property. You can also anticipate creative promotions and discounts, such as resorts that are experimenting with low staycation rates.

Many of the same qualities that make properties attractive for restaurants make them attractive in general, such as good visibility, easy access, and locations in highly populated areas with solid demographics. As a result, we are already seeing some of these properties put to alternative uses, such as neighborhood-oriented medical services or clinics. Hotels that cannot survive economically may need to be repurposed, as well. Limited-service hotels, for example, have been converted in some instances to multifamily or other affordable housing.

Phoenix is legendary for its long, hot summers—and for the hospitality industry, this one may seem longer than normal. Some entities may be able to ride it out with an assist from PPP loans; others will be left to lobby Congress and state/local government for additional forbearances or other relief measures to get through to the return of the fall tourism season.

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