Average daily rate growth continues to lag the rate of inflation in the U.S., and hoteliers are feeling the impact.
Add in the volatility caused by hard-to-predict weather events such as wildfires and hurricanes, and the hotel industry has had a tumultuous few months.
Full-year 2024 revenue per available room in the U.S. was up 1.8%, driven entirely by average daily rate gains of 1.7%.
"But keep in mind, inflation was 2.9% last year, so that means real ADR to 2019 is down 1.7%," said Isaac Collazo, senior director of analytics for STR, on the latest episode of Tell Me More: A Hospitality Data Podcast. "A year ago, it was only down 0.5%, so we've gone backwards."
Why care about this? Because "hotels see profit declines when ADR is below the rate of inflation," Collazo explained. "When you think about what's driving that decline, not only is it lower ADR increases, but labor costs continue to rise."
Jan Freitag, national director of hospitality analytics for CoStar, pointed out that "it used to be common wisdom" that hotels are a good inflation hedge since they can reprice rooms nightly, but "that's actually not the case and we actually went backward compared to 2019."
But the numbers only tell part of the story, as Collazo reminded listeners that "there are so many things happening" that lead to the number, like mix shift, economic issues preventing people from traveling, corporations watching costs and more.
LA wildfire impact on hotels so far
STR has been analyzing the effects of the Los Angeles-area wildfires on hotels from the start of evacuations Jan. 7. Collazo explained the areas involved include a lot of the greater Los Angeles area. While hotels have by and large escaped the flames, analysis now focuses on the impact of evacuees fleeing to hotels, and what will happen as tourists and groups avoid the area and for how long.
"Over the past 12 days, demand in downtown L.A. is down 7.7%, and in Hollywood and Beverly Hills it's down almost 16% ... and Disneyland was also down by a huge amount," he said.
Also in this episode
- No "wall of distress" materializing: Freitag shared hotel loan delinquency data showing a lack of new loan delinquency, proving that the so-called "wall of distress" is off the table.
- Expect more high-end hotel deals: Big-ticket hotel trades characterized the last few months, and Freitag expects more this year, along with acceleration of more typical transaction volume.
- Hurricanes in the southeast U.S. last year continue to have an impact on hotel performance, as 13 affected markets saw large demand gains and will for a long time as displaced residents need housing and rebuilding begins.