by Richard Barkham, Ph.D.; Spencer Levy; Darin Mellot
Feb. 19, 2020
The impacts to the U.S. economy and the commercial real estate industry are difficult to forecast. Industry sectors that export goods and services to China could be particularly affected, as well as U.S. hotels in markets that rely heavily on Chinese tourists. If the virus is relatively contained as expected in the coming weeks, impacts on the economy and most commercial real estate sectors will be noticeable in the near term but less substantive over the year, with a net drag on U.S. GDP growth of between 5 and 15 basis points.
Declines in Chinese tourism to the U.S. during the 2003 SARS outbreak were pronounced. Given the recent growth in Chinese tourist numbers, coupled with the more rapid spread of this virus and widespread airline cancelations, the impact of COVID-19 on U.S. tourism likely will exceed that of SARS. To better understand the potential impact, consider that U.S. visits by Chinese tourists are now 13 times more than they were in 2002, making China the largest foreign consumer of U.S. travel services (airlines, hotels, etc.).2
- Baseline: There will be a modest reduction in demand in key gateway cities due to fewer Chinese tourists. A rebound in Chinese tourism is expected by year-end, but impacts to demand and hotel room rates will reverberate beyond 2020.
- Downside: Fear of infection causes a reduction in discretionary business and leisure travel. Large meetings and conventions are postponed or canceled, causing significant disruption to hotel operations. A stigma toward travel and a reduction in Chinese tourism becomes longer-term, impacting hotel demand into 2021.