U.S. hotel revenue per available room hit the skids in the week ending Jan. 11, falling 13.2% year over year after a 14.9% gain in the prior week. Declines were seen in both occupancy and average daily rate, which can be attributed to a holiday hangover. Unlike last year, this week was the first full week back to work and school after the holidays, and like normal, it was a slow travel week as everyone got back to their normal routines.
Additionally, the week was also affected by the shift of the Martin Luther King Jr. Day holiday weekend. This slowdown was not unexpected and, in fact, was predicted based on our occupancy-on-the-books data, which showed an 18.1% deficit across top hotel markets in the U.S.
Importantly though, we are not reading too much into the sharp decrease in performance given the factors mentioned above.
The top 25 U.S. hotel markets fell the most, with RevPAR down 16.2%, but the results are somewhat deceiving. San Francisco’s RevPAR was down 78.1%, the most of any market in the U.S. due to a calendar shift with the J.P. Morgan Healthcare Conference, which occurs a week later this year. Excluding San Francisco, RevPAR in the top 25 markets was down 9.7% and 9.9% for the total U.S.
Weekends showed the largest RevPAR decline — down 15.9% — due more to occupancy falling 6.8 percentage points than ADR’s 4.9% decline. The change in the MLK holiday was mostly to blame. Weekdays were also soft with RevPAR down 14.1%, but if you exclude San Francisco, the decrease was much less, down 8.3%. Shoulder days Sunday and Thursday were down 7.7%, or down 3.9% without San Francisco.
Los Angeles wildfires affect occupancy
The devastating wildfires in Los Angeles appear to have had a limited impact on hotel performance thus far. Market demand surged Tuesday through Thursday but then dissipated over the weekend. Occupancy over the three days increased 13.9 percentage points year over year, with ADR growing 6.4%.
It is important to note that the ADR gain was driven by luxury hotels, which were up 22.7% over those three days. Excluding those hotels, occupancy was still up 14.2 percentage points, but the accompanying ADR increase was modest at 2.4% and in line with what is normally seen in displacement situations. We believe the growth in luxury hotel ADR was due to room mix with higher priced suites being sold in an off week, making for a large percentage gain.
Occupancy declined 5 percentage points on Friday and Saturday, which was slightly more than what was seen Sunday and Monday when occupancy dipped 3.5 percentage points. Overall, Tuesday through Thursday occupancy averaged 74.9%, with the highest level seen in the Pasadena/Glendale/Burbank submarket (83%), an area that contained the Eaton fire. Los Angeles North, an area south of Pasadena and east of the Palisades fire, saw occupancy of 79.2%, which was comparable to the level seen in the Los Angeles Airport submarket. A year ago, these three markets were running average occupancy of 63.7%, with Pasadena at 58%.
Group demand shifted across the country
San Francisco was not alone in experiencing a conference shift impact. Across luxury and upper-upscale hotels, group occupancy was down 4.3% from the same week last year, with the top 25 markets recording a decrease of 4.7%.
Twenty of the top 25 markets posted group occupancy declines. This is also because of the shift of holidays, and the period being the first full week of the year. However, Atlanta, Philadelphia and Seattle were bright spots, posting double-digit group occupancy gains.
Transient hotel occupancy fell 2.5% nationwide. The measure was down a bit more outside of the top 25 markets (-3.4%) and less so in the top 25 (-1.8%).
Hurricane-affected markets still driving economy hotels
Poor RevPAR performance was seen across all hotel chain scales, except economy, due primarily to occupancy decreases. The decline narrowed from top to bottom, with the top three chain scales down more than 15%, followed by upper midscale down 10.6% and midscale down 3.3%. Economy hotels posted positive RevPAR comparisons due mainly to markets affected by Hurricane Helene and Hurricane Milton.
Since the fall, we’ve been tracking at least seven U.S. hotel markets that have seen continued hotel demand from hurricane-displaced residents and aid workers. We’ve since broadened that list to 13 markets: Augusta, Georgia; Charlotte, North Carolina; Columbia, South Carolina; Daytona Beach, Florida; Florida Central North; Florida Central South; Georgia South; Greenville/Spartanburg, South Carolina; Macon/Warner Robins, Georgia; North Carolina West; Sarasota, Florida; South Carolina Area; and Tampa.
All 13 hurricane markets continue to see elevated performance. Occupancy in these markets increased 10 percentage points with ADR up 5%, resulting in a RevPAR gain of 22.9%. These markets make up just over 4% of U.S. room demand, and while this is small, the markets are also small, which means the impact on these markets is magnified. Additionally, the supply in many of these markets is in the lower chain scales, and that is where the largest impact has been observed.
Combined economy and midscale chains in these markets increased RevPAR 58.8% for the week, followed by upscale and upper-midscale chains, where RevPAR rose 10.2%. The top two chains scales saw RevPAR decline 11.4%. Without the hurricane markets, economy hotels saw a RevPAR decrease of 2.5%.
What US hoteliers can expect
While this week was a bit of a bust for hotels in the U.S., the next week of data is expected to be significantly better. Occupancy on the books is up 14.6% in top markets compared with the same week last year. The start of the MLK weekend will provide a weekend boost while causing a slowdown in the following week with the federal holiday on Monday, Jan. 20. Other things we will be watching:
- San Francisco will benefit from the J.P. Morgan Healthcare Conference.
- Washington, D.C., will see a significant boost over the weekend ahead of the U.S. Presidential Inauguration on Jan. 20. Occupancy on the books in the Washington, D.C., central business district for the Saturday-to-Monday period was averaging 75% as of Jan. 13, which is more than double the typical occupancy on the books figure for this weekend.
- Many markets are expected to see convention and conference business pick up along with business travel as we are now well past the holidays.
- The Los Angeles fires will continue to affect the market and surrounding areas. Displaced residents and recovery workers will need a place, which will lift demand, but meeting planners and travelers may avoid the region in the near term, creating a negative impact. We have heard from hoteliers in the market that they are experiencing group and business travel cancellations for this reason.
Global hotel performance mixed
Across the globe, excluding the U.S., RevPAR increased 7.4%. However, this increase was by no means uniform across countries.
Japan posted the largest RevPAR gain at 24.8%, driven entirely by ADR with Tokyo, Kyoto, Okinawa, Hokkaido and Osaka all seeing double-digit RevPAR gains.
Mexico continued its strong performance since the U.S. Thanksgiving holiday, and the Mexican Caribbean produced the greatest increase.
Indonesia’s 12.7% RevPAR growth received a boost from its largest market, Bali, which increased RevPAR 25.8%.
India also saw double-digit RevPAR growth of 11.5%. The eight largest markets in the country — out of 17 total markets — posted positive RevPAR percentage changes, with ADR being the primary driver in most markets.
Like in the U.S. hotel performance results, several countries across Europe and Canada slowed, which we attribute to the post-holiday lull.
China’s performance was flat, with its top three markets — Shanghai, Beijing and Guangdong — recording RevPAR gains.
In the weeks ahead, hotels in Japan, Mexico, Indonesia and India are expected to remain strong while countries in Europe should see a return to normal business patterns, which will produce more stable performance.
Isaac Collazo is vice president of analytics at STR. Chris Klauda is senior director of market insights 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.