A full recovery of the U.S. hotel sector relies on the return of three sources of room demand: leisure travelers, corporate transient and large industry and private groups.

Group demand declined sharply in 2020 when travelers stayed away from large indoor gatherings, as weddings were postponed and association meetings were canceled. The sharp rise in vaccinated Americans has led to a surge in recent demand from leisure travelers, and this is clearly visible in recent data from STR, CoStar's hotel analytics firm.

There is also some positive news in an uptick in group demand. In April, the U.S. hotel industry sold over 2 million group room nights for the first time since early 2020. This total demand, however, is still less than a third of the group demand seen in 2019.

For companies, the debate over when to return to the office is ongoing and many are still not sending their staff on business trips or to attend meetings in person. Over the past few quarters, many group attendees have participated in virtual events and now many meetings offer a combination of in-person and online sessions, leading to a decrease in overall group demand midweek.

On the other hand, the long-postponed family reunions, birthday celebrations and weddings can now finally happen again, and vaccinated leisure travelers are taking full advantage of the easing restrictions on crowd capacity.

The result is that the long-established pattern of weekday demand dominating total room demand for groups has reversed. In four of the first six months of 2021 the percentage of weekend group demand was higher than weekday group demand.

The absolute shares of group demand have fallen sharply, further testament that the current uptick is being driven by the transient traveler. The shift to a higher share of weekend group demand also points to the large pent-up demand from social groups.

The largest hospitality markets are disproportionately reliant on group demand and the impact of this dynamic shift between weekday and weekend room demand is visible in the chart showing how group demand has shifted from 2019.

Group demand that is being generated on Friday and Saturday can serve as a proxy for leisure demand, and likewise, group rooms sold on a Tuesday and Wednesday can represent corporate travelers. A ratio of these two demand numbers shows whether the demand for leisure travelers or corporate travelers is higher in any given market.

For the first four months of 2019, 18 of the top 25 U.S. hospitality markets had more midweek bookings, or corporate demand, than weekend or leisure demand. The seven markets where this ratio was reversed was not surprising since these markets, such as such Oahu, Hawaii; San Jose/Santa Cruz, California; and Hampton Roads, Virginia, are preferred leisure destinations.

In the first four months of the year, 24 of the top 25 markets reported stronger group demand on weekends, in some case up to over 200%, underscoring the dramatic shift in midweek and weekend group demand.

While the shift from midweek to weekend group demand is notable, it only tells part of the story. The other factor to consider is the much smaller number of group rooms sold this year.

To visualize the sharp drop in group demand, the ratio of rooms sold compared to available citywide meeting space capacity can be insightful and helps to normalize demand across market size.

In 2019, 23 of the top 25 markets sold well over one room per square foot of meeting space, in some instances even two or three rooms. This year this ratio has collapsed and only four markets sold over one room per square foot.

For the U.S. lodging recovery to remain on solid footing, group demand will have to return in earnest. So far in 2021, leisure demand has outpaced corporate demand in the top 25 markets and we anticipate this trend to continue until Labor Day.

More corporations are expected to reopen their offices in the fall, and we expect this will go hand in hand with an increase in midweek convention and group events, spurring higher occupancies in the large hospitality markets and the U.S. overall.