3 minute read 8 Mar 2021
EY - Businessman wearing face mask in lobby of hotel

How to better forecast recovery in the hotel industry

By Umar Riaz

EY Americas Real Estate, Hospitality & Construction Consulting Leader and EY Americas Hospitality Sector Leader

Transformation agent. Innovative thinker. Real estate and hospitality professional . Leveraging technology to drive transformation.

3 minute read 8 Mar 2021

Show resources

  • How to better forecast recovery in the hotel industry (pdf)

 Metrics for hotel forecasting that consider the changes to group and business travel since the pandemic.

In brief

  • The EY hotel forecasting model combines top-down and bottom-up approaches to capture the big picture and detailed analysis of future hotel occupancy.
  • The model accounts for both temporary and permanent effects from the COVID-19 pandemic.
  • Forecasting elements include timing for vaccine distribution and social distancing measures. 

The effects of the COVID-19 pandemic on the hospitality sector mean forecasting for strategic decision-making has never been more critical, yet it remains more challenging. An unprecedented demand environment has made the budgeting and financial planning process difficult. Reductions in occupancy, uneven patterns of demand, continued uncertainty around vaccine distribution and current consumer uneasiness regarding travel all present both short-term and long-run challenges.

The pandemic’s effect on individual hotel performance depends heavily on market and asset type, making a more individualized approach to forecasting crucial. For example, some full-service hotels in leisure-oriented markets have observed strong weekend demand, followed by merely single-digit occupancy during weekdays due to a halt in business travel. Other full-service hotels located in gateway markets and/or exposed to corporate and convention demand are operating at record low occupancy figures.

The future of business travel


of pre-COVID-19 business travel could be permanently replaced by technology.

Public distribution of the vaccine remains a critical step for restoring occupancy levels in the short term, but adjusting to the potential structural changes imposed by the pandemic will be key to long-term recovery. The future of group and business travel is in question, given the rapid adoption of virtual working methods seen during the pandemic. The Barclays Business Travel Survey published in October estimates that up to 34% of pre-COVID-19 business travel could be permanently replaced by technology, and even a fraction of this estimated loss level could have devastating consequences for group- and business-oriented hospitality properties.

How do we calculate hotel forecasting now?

In light of the unforeseen and uneven impacts to demand caused by COVID-19, evaluating strategic decisions for hospitality assets requires a complete re-imagination of hotel forecasting. Whether evaluating an acquisition, disposition, timing of deferred capital expenditures, lender negotiations, asset management, or valuation and highest and best use decisions, the COVID-19 pandemic has forced the hospitality sector to adopt a new perspective in estimating top-line results.

Traditional forecasting methodologies do not quantify the unique impacts of the pandemic, such as the pace of business travel recovery, product type characteristics or permanent losses from group business due to virtual alternatives. Therefore, accurately forecasting demand at an individual hotel property requires both a macro, top-down view that is then compared to a bottom-up, asset-level detailed analysis. 

Proprietary economic forecasts and data-driven forecasting model for the hospitality sector

Top-down macro view

From a macro perspective, traditional forecasting models are no longer reliable, explains Nigel Gault, Chief Economist of EY-Parthenon, the EY organization’s management consulting practice that provides economic forecasting and analysis.

“Pre-COVID-19, real disposable income and real household wealth were drivers of tourism, with GDP as a proxy for business demand, and this was part of the demand forecasting model,” Gault says. “COVID-19 has changed everything and added many variables that didn’t exist before. Now, we aren’t sure people even can spend on hotels, business travel is practically zero and consumers from all demographics and markets have a general fear of traveling because of the global pandemic.”

To accurately capture macro views of the hospitality sector, Nigel further urges abandoning outdated methods.

We have to completely set aside old models and rely on new forecasting factors
Nigel Gault
Chief Economist of EY-Parthenon

As a result, Nigel and the EY-Parthenon team have developed proprietary economic forecasts for the hospitality sector that consider nontraditional forecasting elements, such as timing for vaccine distribution, social distancing measures and government stimulus programs.

This approach factors into our latest accommodations sector recovery curve: 

Proprietary economic forecasts for the hospitality sector

Bottom-up analysis

While important, a macro-level view only provides one perspective when making strategic decisions.

“The bottom line for forecasting now is that it really comes down to the individual property, and there’s no substitute at all for a detailed bottom-up analysis,” Gault says. 

Given the uneven impact of the pandemic on individual hotels, we have designed a data-driven forecasting model quantifying the impact of the COVID-19 pandemic on room supply and demand at asset-level hospitality investments. Hospitality players can use the model to quickly screen new opportunities and evaluate strategic decisions for their properties. The model produces a range of scenarios, including a base case, downside case and upside case, all tied to potential distribution of a vaccine.

The methodology of the model is holistic and twofold: first, the top-down, macro-level EY-Parthenon forecasts are considered in the model to produce an initial demand forecast; the top-down view considers national trends in unemployment, vaccine distribution and social distancing.

Then, a bottom-up analysis is performed to tailor the initial forecast, carefully considering local market and property-specific attributes impacting a hospitality property’s unique recovery curve. 

The chart below summaries the characteristics quantified in the model and Ernst & Young LLP’s assessment of each attribute’s role in recovery from the COVID-19 pandemic:

Data-driven forecasting model quantifying the impact of the COVID-19 on room supply and demand at asset-level hospitality investments

Significant changes in visitor behavior, spending power and expectations affecting both leisure and business travel are expected

Hotel owners and operators agree that the advent of technology as a substitute for business travel and the opportunity this presents for significant savings – in both money and time – will result in some decrease in business travel post-pandemic. However, they also expect events, such as conferences and conventions, which are foundational to networking and making deals, will come back quickly and in line with prior levels.

The hotel landscape will inevitably look different when the dust settles after the pandemic, but without a clear picture of that future, forecasting for hotel occupancy remains a struggle. Despite this, few operators have changed their forecasting methodology and are still using their typical underwriting models coupled with trying to guess or qualitatively capture the influence of the COVID-19 pandemic on their assets. The EY model, on the other hand, quantifies its impact. It accounts for temporary and permanent effects from the COVID-19 pandemic by determining the position around individual hotel attributes:

  • The current state of each demand source (e.g., domestic air travel levels, group business demand)
  • How long it will take for each attribute and demand source to return to pre-2020 levels
  • The permanent changes to demand
  • The amount of weight given to each attribute (in terms of influence on the property’s recovery)

Working toward forecasting asset-level performance in hospitality

Without question, the COVID-19 pandemic has shifted the landscape of the hospitality sector. As the recovery from the pandemic evolves, many hospitality players must also shift their mindset in forecasting asset-level performance in a post-pandemic world.


By using the EY model to examine the characteristics unique to each hotel property, market and demand source, hotel owners and operators and their advisors will have better data to forecast business recovery.

About this article

By Umar Riaz

EY Americas Real Estate, Hospitality & Construction Consulting Leader and EY Americas Hospitality Sector Leader

Transformation agent. Innovative thinker. Real estate and hospitality professional . Leveraging technology to drive transformation.