ATLANTA — Major indicators of positive hotel performance, such as demand for luxury stays, high consumer confidence and increased spending, are in a good place. Yet hotel revenue per available room — when adjusted for inflation — has fallen in each consecutive month since April 2023.
During a presentation at the 2024 Hunter Hotel Investment Conference, Isaac Collazo, vice president of analytics at STR — CoStar's hospitality analytics division — said despite the recent downward trend, RevPAR growth is still projected for 2024 and 2025. Yet room demand has been down in the lower-tier hotel segments.
Jan Freitag, national director of hospitality analytics at CoStar, is projecting RevPAR growth of 4.1% in 2024. Rachael Rothman, head of hotels research and data analytics at CBRE, is projecting 3% growth. When adjusted for inflation, RevPAR isn't expected to fully recover to 2019 levels until 2027, Freitag said.
Consumer spending was up in the fourth quarter of 2023, and accommodation spending remains above services spending. This shows there’s still an appetite for travel, Collazo said.
“This tells me again that the desire for travel is still there,” he said. “What we’ve learned from the pandemic is that it really encouraged or accelerated people’s desire to be with other people, to see new things and to get to travel overall.”
High-End, Leisure Demand Grows
Higher-income individuals have been doing the bulk of traveling, Collazo said. Personal disposable incomes have been decreasing while inflation and credit card debt rise, meaning lower-income individuals have less money to spend on travel.
“Lower-income individuals are being affected more than higher-income individuals. So those people who are predisposed to travel still have the means and are doing so, but maybe at the lower end of the tier we’re starting to see that impact, where you get high inflation, high interest rates and high debt,” he said.
When broken down by chain scale, upscale hotels are performing much better than economy and midscale properties. There have been more closures of economy hotels than in the past, and the demand associated with those properties no longer exists, he said.
Due to these circumstances, hotel segments on the upper end are winning, Freitag said.
“We’re looking at the forecast for the upper end, and we’re looking at 5% RevPAR growth. We’re looking at the economy side, and it’s really small — it’s 1%,” he said. “We’re seeing supply deceleration, also some demand deceleration because of it. But on the upper end, we feel very positive about the return of business travelers, specifically the return of the group traveler and the return of leisure travel.”
Leisure travel is projected to increase 8% year over year in 2024, which would be a 15% increase over 2019 levels, Collazo said. Business and group travel continue inching toward pre-pandemic recovery.
Business, Group On the Rise
Business demand is projected to increase 6% in each of the next two years, and business spending could recover to pre-pandemic levels as early as this year, Collazo said. In February, corporate transient rooms sold were down just 3 million rooms over peak 2019 levels, Freitag said.
In terms of channel mix for business travel, today there are 50% more bookings on brand websites than online travel agencies, said Cindy Estis Green, CEO and co-founder of Kalibri Labs. About 60% of business is coming direct, and 50% of bookings are done online.
"The pattern has been that corporate business has changed, and it's much more [direct]," she said. "The nature of corporate business has changed, and I actually don't expect it to revert back to the way it was, but of course, as the economy grows, the overall volume will increase also."
There's actually more business travel than what the data will show in the channels, though, as some business travelers have been booking on brand sites or OTAs for leisure rates, Green said.
Group travel isn’t fully back, but it’s getting closer and closer, Freitag said. On an annual basis, there were 89 million group rooms sold in February compared to 94 million at peak 2019 levels.
International Travel, Alternate Accommodations Continue To Disrupt
International outbound travel was a major headwind for U.S. hoteliers in 2023, when it was up 31% over pre-pandemic levels. That number is expected to taper off this year at 11% growth over 2019 levels, Collazo said.
There’s room for growth on the international inbound travel side as well. Rothman said international inbound travel is projected to increase 20% year over year. That demand will still lag pre-pandemic levels in major gateway cities such as Los Angeles and New York, though, Collazo said.
The rise in alternative lodging options is cutting into hotel revenues, Rothman said. Jamie Lane, chief economist and senior vice president of analytics for AirDNA, said short-term rental supply growth is outpacing hotel supply growth, which continues to shrink the gap in supply between the two.
Getting more travelers to stay at hotels and capturing the return of international inbound travel are two big parts of the recovery puzzle, Rothman said.
“If we could get consumers to come back to traditional hotels, if we could get international inbound travel to recover, those would be two big paths, or what I would consider a full recovery in progress,” she said.