The lower end of the U.S. hotel segment might hold the key to predicting where the overall industry is headed.

U.S. hotels saw surprisingly modest performance the week of April 28 through May 4 following the previous down week during Passover. Revenue per available room increased 0.5% year over year as average daily rate showed a slight increase of 1.3%, but was offset by an occupancy decline of 0.5 percentage points. Over the past eight weeks, performance has slowed with RevPAR on average increasing just 0.8%, a result of ADR up 0.9% and occupancy down 0.2%.

In anticipation of our upcoming forecast revision, our focus is shifting away from national averages and individual market highs. Instead, we're delving deeper into the bifurcation of chain scale performance as well as examining the dynamics between U.S. top 25 markets and those traditionally drawing in more middle-income, leisure travelers. These comparisons hold the most significance at this point in the cycle, particularly in understanding the pulse of the industry right down to the individual property level. Our forecast will be released during the NYU International Industry Hospitality Investment Conference on June 3.

The top 25 U.S. hotel markets saw flat RevPAR as ADR was up 0.5% but occupancy fell 0.3 percentage points. Weekday RevPAR fell 2.6% and influenced the week. Weekend RevPAR increased 3.1% and the shoulder days of Thursday and Sunday were essentially unchanged (+0.2%). This was a departure from past weeks where weekdays were strongest and weekends weakest. The rest of the country saw slightly better RevPAR growth (+0.8%) on stronger ADR (+1.9%) but a sharper occupancy decline, which was down 0.7 percentage points. Shoulder days were strongest in these markets with RevPAR up 1.3% followed by weekdays (+0.7%) and weekends (+0.4%).

Hotel performance was subdued across all the chain scales. The largest RevPAR declines were in the economy (-4.8%) and luxury (-2.3%) chain scales. The latter was driven entirely by falling ADR – down 3.1% — whereas the former saw equal decreases in occupancy and ADR. Economy demand continued to decline, falling by 3.5% after lesser decreases in the prior two weeks. We believe the impact of inflation, higher debt levels and higher debt costs – in other words, interest rates – are driving some of the segment’s decline along with a multitude of other factors, including less temporary housing needs, limited contractors, etc. Earlier in the year, midscale hotel RevPAR declines were at the same magnitude as the economy segment, but over the past five weeks, the midscale segment has outperformed economy hotels with this latest week’s decrease of 1.5%. RevPAR for upper-midscale hotels was flat with upper upscale (+1.2%) and upscale (+0.9%) both posting gains.

The chain scales remain bifurcated as demand is growing, in decreasing order, among the upper-tier chains from luxury through upper midscale but falling in midscale and economy. This pattern has been seen in most weeks of the year. As stated earlier, we believe the fall in the lower-tier chain scales is economically driven.

Luxury hotels in the top 25 markets reported RevPAR declined 4.7%, which was the largest weekly RevPAR decline and due almost entirely to falling ADR, which dropped 4.4%. While demand has grown in every week of the year, ADR has vacillated likely due to changes in customer mix. Supply in the chain scales has also been on the rise, which could also be adding pressure on ADR.

Economy hotels posted the next largest RevPAR decline at 4%, which was close to its eight-week average (-3.9%). Midscale followed as RevPAR was down 2.8% in the most recent period and 1.4% for the past eight weeks on average. Upper-midscale RevPAR was flat both this latest week (-0.5%) and for the past eight weeks (-0.3%). Upper upscale and upscale hotels saw better performance. Upper-upscale RevPAR was flat most recently (-0.1%) and grew 1.3% over the past eight weeks. Upscale RevPAR increased 0.3%, contributing to 1% average gain over the past eight weeks. Outside of the top 25 U.S. markets, all chain scales, except economy, recorded stronger RevPAR results, a change from what we have seen in most weeks of the year.

Group demand in luxury and upper-upscale hotels returned this week after the previous week’s slowdown; however, the year-over-year comparison was basically flat, down 0.4%. That was the first time this year, excluding calendar shifts, that group demand did not show a significant increase. Group ADR increased 3.2% as it has most weeks.

We will monitor performance across the U.S. chain scales and the top 25 markets as we see divergent trends. Air travel is on the rise, based on TSA screenings, but demand for the hotel industry is falling. Headwinds in the form of inflation, high interest rates, and rising debt are likely having an impact on travel, especially among middle- and lower-income Americans.

Outside of the U.S., global comparisons of hotel key performance indicators remained positive, but there were some fluctuations due to shifting public holiday calendars. The United Kingdom saw occupancy increase 5.6 percentage points to 77.7% as the early May bank holiday moved from May 1, 2023, to the May 6, 2024. This resulted in higher occupancy gains across the country: London grew 4.8 percentage points, Manchester rose 3.6 percentage points, Edinburgh jumped 5.4 percentage points, and Glasgow rose 7.9 percentage points. RevPAR in the U.K. increased 6.9%, all on occupancy, as ADR decreased.

While the date of Labor Day holiday remained on May 1, the day of the week shifted from Monday last year to Wednesday this year. The shift resulted in occupancy decreases in France, Italy, and Germany. Only Spain saw occupancy increase, which rose 1.5 percentage points. A slight year-over-year decline in the cities of Madrid (-0.5 percentage points) and Barcelona (-1.1 percentage points) was offset by gains in the Canary and Balearic Islands, which rose 4.4 percentage points and 1.7 percentage points, respectively. RevPAR in Spain rose by 10%. While occupancy was down in France and Italy, ADR increased 5.3% and 5.4%, respectively. RevPAR in Germany declined 8.5%.

Overall, the global hotel industry continues strong. However, what is happening in the U.S. may serve as a precursor to what will happen in other countries down the road.

Isaac Collazo is vice president of analytics at STR. Chris Klauda is senior director of market insights at STR. William Anns is a research analyst at STR.

This article represents an interpretation of data collected by CoStar's hospitality analytics firm, STR. Please feel free to contact an editor with any questions or concerns. For more analysis of STR data, visit the data insights blog on STR.com.

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