The latest U.S. hotel industry profit-and-loss data from CoStar shows that normalizing demand for hotels and declining occupancy are leading to a reduction in profitability.
Here are five takeaways from the data for October.
1. Total Revenue Growth Stalls
U.S. hotel demand declined for the third consecutive month and occupancy for the fourth consecutive month, which has also affected total revenue growth and profits. Total revenue per available room growth has lingered at 4% or below over the past five months compared to last year. Compared to 2019, TRevPAR is down 2%. Because total operating expenses have realized continued growth, gross operating profit per available room has yet to make any real headway compared to 2022 and 2019.
2. Profit Margins Shrink
Profit margins have been strong throughout the pandemic because operating expenses — staffing and services — were at lower levels, but once demand picked back up in 2021-22, operating expenses started to rebound. The changes in operational structures at hotels did delay the impact on profit margins, but now coupled with lower demand and occupancy levels, the impact has begun to show. GOPPAR and profit margins are now at their lowest levels since January.
3. Operating Expense Growth Slows
While growth in total operating expenses is still happening, the monthly growth rate has slowed to 0.3%. That means hoteliers have done a good job trying control the rise in expenses, but they are fighting an uphill battle. Average operating costs per available room are $6 higher than they were in 2019, with 53% of that expense coming from labor increases.
4. Labor Costs Also Rising at a Slower Pace
Total labor costs continue to grow, but at a slower pace, likely mirroring slower growth in demand for U.S. hotels. Labor costs per available room through year-to-date August are only $1.15 higher than over the same period in 2019. Total labor costs per operating room grew by 8.3% as of August, compared with 9.5% in 2023 through July. Labor costs per operating room have slowed by an average of 2.3% per month. With inflation slowing, more contract work being used, continued operational changes — i.e., no daily cleaning — and labor itself at the levels required to run the business, hoteliers are not increasing wages.
5. Groups Boosting Food-and-Beverage Revenues on Weekdays
After a very slow summer, group demand has started to pick up into the fall conference season. This could be very beneficial for the food-and-beverage department as catering and banquet revenue has been lagging since the start of the pandemic. Food-and-beverage revenues are up 9.9% compared to 2019 and while a lot of that is due to inflation, one good sign is that other food-and-beverage revenues, which include room rental and audio/visual fees, is up 16.6% compared to 2019 when adjusted for inflation.
Raquel Ortiz is a director of financial performance at STR, CoStar's hospitality analytics division.
For more analysis of STR data, visit the data insights blog on STR.com.