Two years after the start of the COVID-19 pandemic, the U.S. continues to lead the resurgence in hotel demand — and that demand has led to historically unmatched pricing power, as well as a quickening pace of hotel transactions.
In his latest video analysis of hotel performance trends, Jan Freitag, national director of hospitality analytics at CoStar, noted that the U.S. hotel industry sold 108 million rooms in April, which "basically matched the demand from three years ago."
This demand continues to come in the largest part from leisure travelers, as business travel remains "well below 2019 levels," Freitag said.
The biggest surprise in the April performance data from STR, CoStar's hospitality analytics firm, is how sustainable higher room rates have been, even amid macroeconomic concerns such as inflation.
"Healthy demand drives rates and operators are actualizing room rates that are 14% higher than they were three years ago," Freitag said, noting the caveat that this comparison to 2019 rates does not account for inflation.
For April, U.S. hotel average daily rate was up 35% compared to April 2020, marking 12 consecutive months of double-digit, year-over-year improvement in the metric.
"If someone had told me we would see a full year of 30% ADR increases, I would have suggested they had one too many Jack Daniels for breakfast. But here we are," Freitag said.
However, in absolute terms, room rates at U.S. resorts were down, "but only slightly," while rates at hotels in urban markets rose, he said.
"Hopefully, that is a sign of more corporate and group demand. The industry actually sold over 7 million group rooms, so that was a very positive sign," he said.
The continuing recovery of the hotel industry is also raising confidence among hotel buyers and sellers, which is evident in recent high-value transactions.
Freitag highlighted the sale of Watermark Lodging Trust to Brookfield Asset Management for $3.8 billion, or roughly $465,000 for each of the portfolio's 8,100 rooms at 25 properties across the U.S.
The recovery to pre-pandemic norms is not advancing at the same pace in other parts of the world, Freitag said.
Hotel markets in China and the Asia-Pacific region, in particular, are struggling with low occupancies due to lockdowns and increasing COVID-19 cases.
"European occupancy is still 30% below where it was," Freitag said.
"The ADR story is a bit more positive for Europe, the U.S. and the Middle East. Especially in the Middle East, ADR has now been over the 2019 results over six months," he said. "The demand weakness all over APAC is translating to room rates that are still 7% below pre-COVID. And the outlook continues to be cloudy for China, where the zero-COVID protocol makes travel difficult. And that impacts room rates, which are still 30% below 2019 results."
For more of Freitag's insights into hotel performance and transactions, watch the video above.