• Hotel Industry in Recovery: Occupancy, Rates, Revenue and Demand All on the Rise

    The second-quarter numbers tell a story of a hospitality industry in recovery, both in terms of room rate growth and occupancy.

    Room rate, total revenue, demand and supply all reached record highs in the second quarter. While national occupancy is still three points below 2019 levels, that is largely because supply growth is muting the impact of the returning demand. And in addition to the millions of leisure travelers on their summer vacation, midweek demand from corporate travelers and convention attendees is also rebounding.

    These numbers have allowed many operators to continue increasing room rates at a healthy clip. In the second quarter, prices for a single hotel room were 26% higher than last year. This is below the 30% pace of growth so far this year, but a slowdown was expected since room rates are now higher than they have ever been. On an absolute basis, the $152 average rate is almost $20 above the results from three years ago.

    The bright spot for hotel operators continues to be group travel. The number of group rooms sold is now just 10% below the same period in 2019, a healthy recovery. Citywide convention and association events have proven to be an efficient way to get together and meet with clients and partners while everyone is convening in the same city. But the renewed emphasis on group travel may come at the expense of single-purpose trips to see just one client in one city. It is therefore highly likely that individual corporate transit demand will continue to show a much slower recovery.

    The hotel construction pipeline count continues to decelerate and now stands at 609,000 rooms in all phases of development. Rooms that are in construction continue to open, but rooms that are in the planning stage are not breaking ground, so the in-construction room count is dropping. For some developers, the higher interest rate environment makes projects that were only marginally profitable unfeasible. For other projects, developers need to find more equity to make the numbers work. In addition, the supply-chain woes that have delayed many projects are still not worked out and continue to plague builders.

    The forecast for the industry is decidedly uncertain as the pace of growth in the U.S. slows. The CoStar hotel forecast does not currently indicate a recession on the horizon, so growth in hotel revenues should continue — albeit at a slower pace. But given the outlook for the broader economy, questions surrounding industry performance are plentiful. Will an uptick in the unemployment rate and a continued increase in inflation impact leisure spending? Or will the high level of accumulated savings at all income levels give consumers the ability to continue to spend on trips and experiences? Corporations have slowed hiring, and some are resorting to layoffs. Will this reduction in expenses impact corporate travel expenditures as well, or will we see a continued slow increase in business travel — albeit not at levels reported in 2019? Group demand continues to be strong, and a slowdown in economic activity might mean fewer people attend events. On the other hand, with fewer people returning to the office full-time, group meetings may exactly be what is needed to build culture, camaraderie and team cohesion.

    As operators continue to benefit from the current demand situation, the next couple of quarters could be decidedly more difficult to manage. The interplay between leisure and business travel will be closely watched by owners and industry observers alike as they get ready for the fall.

    Source: www.CoStar.com