New York City, San Francisco and Miami are among the U.S. cities experiencing the steepest increases in hotel room demand, as international travelers begin to return to the U.S. after years of pandemic-induced travel restrictions.
Hotels in these large, gateway markets are approaching record summer performance, according to data from STR, CoStar's hospitality analytics firm.
For the week ending June 18, hotels in New York, San Diego, Seattle and Boston each reported occupancy rates of more than 84% — among the highest in the country — and nightly room rates were up 65% in Maui from the comparable week in 2019, marking the largest room-rate increase in the U.S., according to STR.
“We’ve come out of this pandemic really strong, and what’s particularly pleasing is that it’s not coming from one particular segment,” said Bob Van Den Oord, regional vice president of operations for Langham Hospitality Group’s North American, Europe and Middle East regions. “Chicago was our first hotel to come close to 2019 numbers because Chicago relies so much on domestic travel, but L.A. [the Langham Pasadena] is now doing better than Chicago. New York took a little longer to come back, but gosh is it back.”
Hotels in U.S. gateway markets, which rely heavily on international demand, have been hard-hit for much of the pandemic era amid travel restrictions and successive waves of COVID-19 cases. The omicron variant that caused U.S. average daily new COVID-19 cases to jump more than tenfold between late October and mid-January dealt hotel operators in gateway cities a far swifter blow than hotels in smaller drive-to markets off the coast.
Specifically, while U.S. first-quarter revenue per available room was down just 2.7% from 2019, hotel markets in San Francisco, Seattle, New York City and Washington, D.C. reported the four steepest drops in RevPAR among the top 25 markets, according to STR. San Francisco hotel RevPAR was down more than 58% compared to the first quarter of 2019. Meanwhile, first-quarter RevPAR for destinations outside of the 25 largest U.S. hotel markets was actually 6% higher than 2019, according to STR.
“About 95% of the customers come from inside the U.S., 5% outside,” Hilton Chief Financial Officer Kevin Jacobs said on his company’s earnings call in May. “Now in big cities like New York, San Francisco, L.A., that could be up to 20% for cross-border. That obviously plummeted during COVID to near zero and now is actually approaching pretty close to normalized mix, both in the U.S. and Europe.”
The number of international visitors to New York, which plunged from 13.5 million in 2019 to less than 3 million in both 2020 and 2021, is expected to rebound to 8 million this year and rise further to 11.1 million in 2023, according to a March study by NYC & Company, the city’s tourism bureau.
International visitation to California has followed a similar trend, dropping from nearly 18 million in 2019 to 3.7 million in 2020, according to Visit California. This year, California expects 11.3 million international visitors, and that number is expected to increase to 15.1 million in 2023, according to the state’s travel-marketing organization.
IHG Hotels & Resorts has noted a surge in bookings from Canada, the U.K., Mexico and Germany to cities such as New York, Miami, Orlando and Los Angeles, according to Brian Hicks, senior vice president of commercial and revenue management for IHG’s Americas region.
“We have seen that the demand has been led by travelers from the U.K., Germany, Spain and France in Europe; and Canada, Australia and Mexico markets,” added Asad Ahmed, senior vice president of commercial services for Hyatt Hotels Corporation’s Americas region. “Several Hyatt properties in major urban U.S. markets, including San Francisco and New York, have seen an increase of more than 20% from U.K. travelers, followed by markets including Los Angeles, Miami and Chicago.”
Hoteliers in gateway cities have indicated that they don’t expect demand to reach pre-pandemic levels until next year, while STR said this month that, adjusted for inflation, a “full recovery” in U.S. hotel RevPAR from the pandemic would be delayed until 2024. Some of that delay may be due to the fact that international travel remains in catch-up mode.
Marriott International CEO Tony Capuano, speaking on his company’s earnings call in May, estimated that “cross-border guests,” which accounted for 19% of his company’s business in 2019, made up just 14% of Marriott’s first-quarter global room nights.
Langham’s Van Den Oord acknowledged that, while international leisure travel is approaching pre-pandemic levels, international business travel remains relatively sluggish. For Langham’s New York hotel, that’s meant a 60% to 40% leisure-to-business guest breakdown, which is reversed from the 2019 ratio.
Capuano and other hotel industry executives have acknowledged the challenge of forecasting room demand levels because of the shortening of booking windows.
“We have much less visibility into [the third and fourth quarters] because the booking windows have been shortening generally and then the trend towards shorter group bookings is even more acute,” Capuano said on Marriott’s earnings call. “I think it's that murkiness of visibility in the back half of the year that's causing us not to be more bullish in terms of forecasting.”
Still, while business travel out of Asia continues to lag, Van Den Oord said that corporate bookings out of the U.K., Western Europe and even the Middle East signal a return to normalcy after two years of obstacles. His company is banking on returns on gateway market investments such as an $180 million renovation to the Langham Boston and a new club lounge at the Langham New York, Fifth Avenue.
“Last year, November and December were actually really good for our U.S. hotels — omicron happened, and that took a couple months to get over that, but March was a turnaround month for us,” Van Den Oord said. “We’re going to have a really strong summer.”