A question throughout the hotel industry is just how much pricing power hoteliers can exercise this summer, according to Jan Freitag, national director of hospitality at CoStar.
In a monthly video analysis of March preliminary data from STR, CoStar's hospitality analytics, Freitag said hotel performance for the month was promising. Revenue per available room was 4% higher than what it was in March 2019, largely due to average daily rate, which was 10% higher. Occupancy for the month still lagged 2019 figures by about 4%.
"I'm very, very interested in seeing what the summer holds with regards to pricing power," he said.
In terms of inflation and how much more expensive goods and services can get, hotels are no exception, he said. Year-over-year changes in room rate growth show the long-run average in the 30 years prior to 2020 was 3%, but this March it was up 37%.
Freitag said those numbers are "quite astounding," but not to forget the "A" in ADR stands for average.
"That average hides March monthly room rate increases. For urban hotels, it was 56% and for hotels in airport locations, it was up 42%," he said, adding he hopes this signals the beginning of a sustained recovery for location types that rely heavily on business travel demand.
While room rates increased for the month, occupancy for urban hotels was still more than 10 points below the March 2019 results. On the flip side, resort hotels during "the mother of all spring breaks" achieved strong occupancies, and resort room rates topped $260.
Hourly Wages
As room rates are increasing, so are wages. Freitag said hourly wages between 2019 and 2021 increased by $1, whereas the increase over the past year was $3.
"Wage growth and access to labor are the topics at any conference that I attend, and there really aren't any easy solutions, but barring any structural changes to immigration or labor force participation to boost the amount of people in the labor force, that just means one thing: hoteliers have to pay higher wages," he said.
For more of Freitag's insights on the latest U.S. hotel industry performance trends, watch the video above.