Luxury hotels around the world continued their recovery in 2022 and more good news is on the horizon. High-end hotels in the Americas and the Middle East and Africa region, or MEA, nearly matched their demand numbers from three years ago. Demand for European luxury-class hotels was only off 12% from its 2019 high level, according to STR, CoStar's hotel analytics company. And now that China and Japan have ended their long pandemic shutdowns, this should spur intra-Asia travel as well as some additional international inbound demand.
High-end hotels and resorts around the world have benefitted from sustained demand from leisure travelers and luxury and incentive groups. The missing piece is still the return of corporate transient demand, which is influenced by large corporations and their travel spending. This is partially due to the more efficient ways of communicating and meeting online, and partially because of a looming recession that puts a damper on travel expenses and also, especially in Europe, a stronger focus on limiting travel-related carbon emissions. These forces will likely impact the high-end corporate demand in 2023 as well.
The stronger room demand has led to occupancy recovery across most global regions. But the mentioned demand shortfall compared to 2019 coupled with continued new supply increases have resulted in lower occupancy levels that are still below 2019 peak results. In the Americas, Europe and MEA roughly six out of 10 rooms were occupied on average last year. In Asia, the results are much weaker, and on average over half the rooms were empty each night for the full year.
The bright spot in the global luxury hotel recovery was – and is – room rate growth. Compared to three years ago, the average daily rate, or ADR, has increased by more than 30% in three of the global regions, with Asia being the notable exception. In other words, despite lower occupancy levels, hotel operators were able to capitalize on the positive demand growth by raising room rates. Anecdotally, high-end resort operators see little price resistance from luxury travelers willing to spend extra for ocean-view suites or connected rooms to allow multi-generational travel groups to be close.
The lack of demand and occupancy in Asia, especially in China and Japan, has made price increases in this region difficult, and over the last three years luxury class ADR has increased by only 5%, well less than the rate of inflation across the region. In real terms, rooms in Asia are now less expensive than they were in 2019.
The increase in high-end room rates has led to record-high ADRs. The average daily rate stands at over $300 in the Americas and MEA and over $400 in Europe. Asia trails in this category as well, with luxury rooms averaging only half as expensive as those in Europe. These averages imply that many markets and hotels charge well over $1,000 per night.
Major European cities such as Paris and London registered very high ADRs and strong rate growth since they have proven to be very attractive to American travelers when the U.S. dollar had a favorable exchange rate. Rate increases in local currency were even higher. Dubai hosted some major events and continued to be a favorite destination for luxury travelers. Operators were able to capitalize on the influx by increasing rates by almost 50%. The other side of the spectrum is made up of cities in Asia which for some period were reliant almost solely on local clientele and staycations. As these markets reopen to Chinese and other international travelers, room rates should increase.
For 2023 expect the global luxury hotel industry to continue to see demand and room rates increase. Even an economic slowdown should only mildly impact high-end travelers as some are still looking to make up for travel time they lost over the last two years. In addition, companies are expected to continue using high-end incentive and group trips to motivate staff and top performers.
One continued soft spot will likely be corporate transient demand and downtown city center hotel locations will probably have to contend with lower occupancy because of this shortfall. Room rate growth for luxury hotels and resorts is expected to be an ongoing success story, lifting performance results for hospitality properties around the world.