Surges in weekday demand and pricing power across the top 25 hotel markets helped drive positive changes in hotel profitability for full-year 2023.
While the U.S. hotel industry overall continued to grow gross operating profit per available room (GOPPAR) year over year, the top 25 hotel markets are accountable for most of this growth, well exceeding the national average for the year.
In 2023, demand growth in the top 25 surpassed all other U.S. markets, leading to occupancy growth of more than two times the rate of the other markets. Nearly two years of “normalizing” travel patterns pushed these top markets back to their typical role in leading all U.S. hotel markets and driving up total revenues and profits on a per-available-room basis.
Much of this growth stemmed from improvements in demand from groups and weekday business travel. Upper-upscale hotels led all other chain scales. Improved group demand resulted in food-and-beverage revenue growth, driving total revenue growth and group average daily rate. Overall, the upper-upscale segment grew total revenue per available room (TRevPAR) more than any chain scale in 2023 and grew profiability by 13.6%.
The top 25 markets increased GOPPAR 13.1% in 2023, while the metric grew by less than 1% in the other markets. Relatively flat occupancy growth at 2.2% outside of the top 25 and limited pricing power pushed total revenues up only 4.6%. Paired with labor cost growth of nearly 10%, profitability remained flat for the year for these markets. Meanwhile, the top markets were able to better withstand a 15.4% increase in labor costs due to strong double-digit growth in total revenues.
Nearly all of the top 25 U.S. hotel markets showed improvements in both total revenue and gross operating profits for 2023, and nearly half of these markets sustained double-digit growth in GOPPAR for the year. One exception was Miami, which is coming off extremely strong performance during the course of the COVID-19 pandemic.
Miami's hotels underperformed in total revenues compared to the prior year as a result of loss of occupancy, as demand moved to other key markets such as New York and Washington, D.C. What Miami lost in GOPPAR growth, New York more than gained, increasing profitability 47.1% for the year and leading all the top U.S. hotel markets.
New York's occupancy growth also led to a 11% increase in labor costs, but strong revenue growth still led to a 6-percentage-point increase in profit margins. That was the highest growth rate in among top 25 markets.
Occupancy on average for the top 25 U.S. hotel markets increased 5.7%, however labor costs increased nearly three times that. The occupancy increase drove significant increases in labor costs. All but two of the top 25 markets saw double-digit labor cost growth. The two exceptions were Phoenix, which grew occupancy minimally, and Miami, which lost occupancy. All top markets realized labor costs that exceeded the growth of national averages for salaries and wages for the leisure and hospitality sector, according to the U.S. Bureau of Labor and Statistics.
Overall, the top U.S. hotel markets are back on track as the driving force behind national growth in profits. As 2024 continues, these markets will be ones to watch to monitor U.S. profitability as travel patterns continue to normalize and the data reflects these patterns.