NEW YORK — Higher-than-expected rate growth, normalizing demand segments and other factors drove changes in U.S. hotel performance projections for 2023.
In an interview with Hotel News Now at the 2023 NYU International Hospitality Industry Investment Conference, STR President Amanda Hite spoke about the latest U.S. hotels forecast revision and what's expected for the rest of this year. STR is CoStar's hospitality analytics firm.
STR and Tourism Economics revised the 2023 U.S. hotel forecast up to 5% growth in revenue per available room, Hite said. That change is due to strong average-daily-rate growth through the first part of the year.
“The first quarter was really strong,” she said. “ADR came in higher than what we had anticipated.”
The luxury and upper-upscale segments were the ones driving rate, but there has since been a year-over-year decline in luxury rates, Hite said. To be clear, though, that’s more of a return to normal than anything going wrong in the segment.
“We just had such all-time highs with the leisure business last year that that segment has seen some year-over-year decline, but luxury rates are still higher than they were in 2019,” she said. “The luxury segment is the one segment that has real ADR higher than 2019.”
Demand overall has been a little weaker than expected, Hite said. As a result, STR revised its ADR forecast up to 3.5% growth with occupancy down to 1.4%. It reduced new supply projections to 0.6%, so new hotels won’t affect existing hotel performance much this year or next.
Part of the revision process incorporated pushing back the effects of the slowing economy to the third quarter, she said. Originally, Tourism Economics and Oxford Economics forecast that gross domestic product would decline in the start of the second quarter, but they pushed that out.
“We've taken more of the slowdown into ’24 and brought RevPAR forecasts down from where we have been for ’24,” she said.
Looking at the rest of 2023, there are a handful of factors driving growth, Hite said. The first is the 3.5% ADR growth. That’s good in comparison to a slowing economy, even if it’s not keeping up with the pace of inflation.
The other factor is that group demand has come back strong over the past several months as leisure demand has softened, she said. On a 12-month basis, the industry is only 8% off 2019 levels for group demand.
“That’s really going to carry the calendar for the remainder of the year to help us with the demand,” Hite said.
While it varies by market, there’s more group demand being layered into the business mix than last year, she said. It’s a lower-rated business compared to leisure, however, so it will affect ADR.
The industry’s weekday rate is about 7% below where it was in 2019, so that’s where it has the most room to grow, she said. Over the course of the year, group and corporate travel are expected to come back. While group itself won’t bring rates all the way back to where the industry was in 2019, that’s where it will see rate growth, specifically in the upper-upscale segment.
Real rate recovery won’t happen for a couple more years, Hite said. Inflation has come down some, but there’s still a lot going on in the macroeconomic environment that brings growth but will keep inflation higher than desired.
“It’s good for hotels,” she said. “I think that it’s going to give us a lot of opportunity. Ultimately, rate could end up higher, meaning I think we’re probably the most conservative on our forecast. I think there’s a lot of upside still left for rate for the rest of the year.”