Hotels in major urban areas were the hardest hit and slowest to recover from the pandemic. They are finally making a comeback as urban markets have fully reopened and demand for hotel accommodations has surged in most of these markets since late in the first quarter through June of this year, marking somewhat of a demand shift from the beach destinations that were most popular in 2021.
Los Angeles, New York, Boston, Seattle and Chicago are leading the recovery across urban markets. Washington D.C. and San Francisco are lagging and have more ground to make up before getting back to pre-pandemic revenue per available room, or RevPAR, levels, a key performance indicator for hotels that combines occupancy and average hotel rates in single metric.
However, the strength of the revival varies by location. While New York achieved the highest absolute occupancy according to June data at nearly 84%, it is still nearly 7% below June 2019 levels, while occupancy in Seattle's urban hotels has recovered to less than one occupancy point from its June 2019 level. San Francisco had one of the lowest June occupancy levels among the group of hardest-hit markets at 75%, but it has experienced the most significant improvement year over year.
The primary driver in this ongoing recovery has been the increase in Average Daily Rate, or ADR, which is the average hotel room revenue per occupied room and which has continued to gain momentum through the summer. In May, only three of the major urban hotel markets had exceeded their year-to-date May 2019 ADR. However, in June, six of the seven markets exceeded their June 2019 ADR, resulting in five of the seven markets — Los Angeles, New York, Chicago, Seattle and Boston — achieving June RevPAR levels near or above June 2019 RevPAR.
The robust demand growth is being driven by leisure travel and the return of group business comprised of conventions and conference related occupancy. However, each location has its own hotel recovery story and results.
Los Angeles
RevPAR in urban hotels in Los Angeles exceeded 2019 levels each month since December with the exception of January. This resulted in Los Angeles being the most recovered market on the list for year-to-date June performance. The robust recovery in room demand is especially impressive considering that Los Angeles is among the top three U.S. destinations for international travelers.
Last year, Los Angeles was one of the hardest-hit markets nationally but still fared better than the other major urban markets as average daily rates started exceeding pre-pandemic levels earlier than the other markets. The large geographic span of the Los Angeles market reduces the dependence on central business district performance. The Beverly Hills and Santa Monica areas achieved higher RevPAR levels before and through the pandemic. The heavy concentration of luxury rooms in these destinations boosted hotel performance as luxury class hotels were able to maintain or exceed pre-pandemic rates, despite lower demand.
Despite California having some of the most extended and strict COVID-19 safety requirements nationally, leisure demand remained consistently strong, largely because Los Angeles is a highly desirable drive-to market. Hosting the Super Bowl at SoFi Stadium in February further boosted hotel performance, and room night demand started recovering with a higher propensity. As conventions and conferences return at higher attendance levels, group occupancy has improved each month, further benefiting the market.
New York
New York lodging demand started surging in February. Leisure travel, international visitation as well as some business travel and group business have come back to the market, and the “New York energy” is palpable again. ADR has surpassed 2019 levels every month since February. ADR in June was 12% higher than 2019, and market RevPAR in June exceeded 2019 for the first time since the onset of the pandemic.
Also in June, the market achieved average occupancy of 83.7% driven by strong summer leisure demand. However, this was still 6.7% points below the market level in June 2019. Mid-week occupancy has improved, with Tuesdays in June recording the highest day-of-week average occupancy at 90.2%. Saturday has been the highest occupancy day throughout the pandemic. This trend of RevPAR exceeding 2019 levels in June is expected to accelerate through the summer, driven by increased inbound international travel and solid pricing power across the market.
Boston
After suffering a 46% decline in 2021 RevPAR from 2019 levels, Boston has seen robust growth in room demand since March. Year to date through June, market RevPAR has recovered to reach 88% of the level for the same period in 2019. RevPAR growth is primarily driven by increasing ADR, with the market surpassing 2019 ADR in May and June. June ADR was 5% higher than 2019, and June RevPAR was a 99% recovery to the same month in 2019. The growth in room demand was largely driven by leisure, conventions and conferences and some business travel. Group mix in June was 34%, only 600 basis points below the pre-pandemic stabilized group mix of 40%. Group business is expected to show momentum through the rest of the year, which should further boost Boston's recovery.
Chicago
After a challenging 2021 that saw RevPAR decline 40% compared to 2019, room demand in Chicago has grown substantially starting March. Through June of this year, RevPAR has recovered to 86% of 2019 levels. Market ADR has been at or above 2019 levels for each month from March through June. Market RevPAR in June reached 2019 levels for the first time since the start of the pandemic. Group demand rebounded in recent months, with group mix reaching 43% in June, the highest pandemic-era group occupancy. Hotel occupancy in Chicago over the summer is expected to be strong, driven by leisure and a strong convention calendar. However, business travel-related occupancy continues to be low with occupancy levels in the central business district still below 40%.
Seattle
The recent strong recovery for Seattle hotels has been driven by the revival of leisure and group demand. Seattle was unable to benefit from a strong leisure recovery last summer due to a shortened cruise season, international travel restrictions in place and strict COVID regulations. This year, hotel performance is much improved thanks to a full cruise season, the revival of international visitors from Canada who make up the majority of international visitors to the area, and the lifting of COVID restrictions.
However, Canada reinstated mandatory random testing to enter the country in July, which could adversely affect some of the hotel recovery seen in June. Weekday occupancy levels are growing but are farther behind in recovery compared to other markets due to a heavy tech presence that provides better flexibility in where employees can work. Conferences and conventions have boosted group occupancy to peak pandemic levels, a trend that is expected to continue through next year, especially as the expansion of the Seattle Convention Center is projected to finish early next year.
Washington D.C.
In 2021, Washington was the third-worst performing market across the U.S., posting a RevPAR decline of 49% compared to 2019. While demand has grown significantly this year, it is still below most other major urban markets analyzed for this article, only San Francisco is seeing a slower recovery in its urban hotels than Washington. Through June, the Washington market had recovered 81% of RevPAR for the same period in 2019. The past couple of months have shown promising growth, with ADR exceeding 2019 levels in both May and June. Occupancy recovery, however, is being impacted by anemic business and government travel as a result of continuing hybrid and remote work policies. The market should have a strong performance in the second half of 2022, driven by a robust convention calendar.
San Francisco
San Francisco no longer holds the title for having the largest RevPAR deficit to pre-pandemic levels, but it is still one of the worst despite better recent recovery. Year to date, the market's urban hotel performance remains 40% below June 2019 levels. While some of this is due to the cancellation of the J.P. Morgan Healthcare Conference in January, historically one of the highest revenue generating annual conferences, recovery has been limited by reduced international visitors and the heavy tech and financial employee base, which has generally offered flexible hybrid working options, hindering corporate travel.
Prior to the pandemic, international travelers accounted for 44% of all overnight visitor spending in the market, according to the San Francisco Travel Association. While international travel regulations have been removed for entering the U.S., it has so far not benefited San Francisco as much as other destinations, as the city's biggest source of international tourists was China and nonessential travel overseas is still banned for Chinese. It is the only market on the list with hotel rates still below pre-pandemic levels. Regardless, recent hotel recovery has been remarkable, with June RevPAR only 14% below June 2019 levels. This year convention room nights are expected to be nearly 70% of 2019 levels.
While the majority of these seven urban markets are finally showing meaningful recovery, it is clear that all markets are not recovering equally, with diverse segments driving recovery. However, a common theme is that ADR has been the primary driver behind the recent recovery. It remains to be seen how sustainable the rate growth is, particularly after the summer leisure travel season comes to an end.