NASHVILLE, Tennessee — Midweek hotel demand has been trending up over the past few years, with transient demand recovering at a quicker pace than group demand. Despite this, the group segment is in a better position to fully recover as office attendance and new hotel supply stand in the way of transient demand.
Prior to the pandemic, Wednesdays served as the premier midweek day in terms of capturing U.S. hotel occupancy, mostly from corporate travelers. Its 66% combined average occupancy from 2010 to 2019 was the highest of any day between Monday and Thursday, showing steady growth through the second half of the decade.
Of course, those numbers took a severe dip in 2020 as offices shut down and business travel plummeted. In 2019, Wednesday hotel occupancy was at 68.4%; it dropped to 43.9% in 2020.
Speaking during the "Wednesdays Are the New Wednesdays: Exploring Midweek Demand" session at the Hotel Data Conference, CoStar National Director of Hospitality Analytics Jan Freitag said hotel occupancy then was even worse than it looked.
"We dropped from selling 7 of 10 rooms to selling 4 of 10 rooms," he said. "And you know then that 40% [occupancy] number is actually a false positive because the second quarter was much worse."
Average daily rates at hotels fell along with occupancy on Wednesdays, down $32 year over year from 2019 to 2020. There were 28.4 million transient hotel rooms sold on Wednesday in 2019; that fell to 12.7 million in 2020. On the group side, 15.4 million hotel rooms were sold on Wednesday in 2019 compared to just 4.3 million in 2020.
Where Wednesday Stands Today
Wednesday occupancy year to date in June 2024 was at 62.1%, slightly down from 62.5% at the same point last year. It's still in recovery mode to get back to the 68.4% occupancy level in 2019, but Freitag said due to the hotel industry's dynamics, it makes sense that occupancy is still lagging.
"Of course, demand is not quite back but also keep in mind, while you all weren't working because we didn't have any guests, your owners kept building. So we continue to add new supply, and it's going to be a minute until we not only make up the room demand that we had in 2019, but also then overcome the new supply growth," he said.
Wednesday room supply grew 3% from 2019 to 2023. Supply has been muted over the past eight quarters, though, which could be a benefit to hotels seeking to boost occupancy, he said.
Rates on Wednesdays, however, recovered to 2019 levels by 2022 and now stand 50% higher than they did in 2020.
"On the rate side ... it was awesome, right? It was a total success story," he said.
A big reason why it's been easier for rates to recover quicker than occupancy is inflation, Freitag said. There was 6% growth in average daily rate between 2016 and 2019; rate grew at the same growth percentage from 2022 to 2023.
Demand from Monday through Thursday remains below 2019 levels on both the transient and group side. Transient demand is down 3% on those days while group demand is down 8%.
Freitag said the outlook on group demand is still mostly positive throughout the industry.
"I have high hopes that that's going to continue to be a really good number and could continue to have a fairly good growth rate through the remainder of the year; specifically we have high hopes for October and September to see really healthy group increases," he said.
There's more reason to be concerned on the transient side than the group side despite transient hotel demand trending closer to its 2019 levels, Freitag said. Office attendance is at only 50% of what it was in January 2020, according to Kastle Systems' Back to Work Barometer, and office demand has been weak across location types.
This spells out less travel for meetings.
"If we are not in the office ... if your main office is on Park Avenue, I'm not going to fly from Nashville to New York to meet with you in your kitchen in Hoboken," he said. "That's not going to happen. We're just going to do this on Teams or Zoom."
In New York City, San Francisco and Chicago, more class-A office availability has correlated with lower upper-upscale hotel occupancy, which is perhaps a sign of this trend, he said.
A lack of travel for meetings along with added supply makes it tougher for downtown hotels to get back to the occupancy they held pre-pandemic.
"On the transient side, I continue to have questions. When are we going to get back? Because we are not in the office all the time," he said. "On the group side, I have no questions. I think it's just a question of when the recovery will happen."