Waning pricing power in the U.S. hotel industry could be a sign that economic pressures are squeezing out lower-income travelers, while outside of the U.S. hotels seem to have entered the normalization phase of the recovery.
The latest weekly performance data from CoStar shows that U.S. hotel revenue per available room declined year over year for a second consecutive week and by its largest margin this year. That 3.5% decline was mostly due to a 2.1% drop in average daily rate compared to the same week in 2023.
Economy hotels took the largest hit, with revenue down 8% from a year ago; but hotels at all chain scales posted declines.
Outside of the U.S., global revenue per available room fell 0.4%, the first drop since early 2021. After an extended period of double-digit revenue growth, gains over the past four weeks had been under 10%. The latest week’s decline was a result of falling occupancy, partially due to Ramadan, which started on March 11 and will continue until April 9.
US Performance
U.S. hotel industry revenue per available room declined every day of the week with the largest declines on Thursday (-5.8%) and Friday (-6.7%). Weekdays (Monday-Wednesday) did better with RevPAR down 2.3%.
Declines were steeper in the top 25 markets, with RevPAR down 5.2% year over year compared to a 2.1% decrease across all other markets.
Las Vegas hotel performance dragged down the top 25 and total U.S. metrics. Excluding Las Vegas, RevPAR in the top 25 markets was up 1.4%, and national RevPAR was down only 0.6%.
Occupancy for the week was 66.5%, the best level since late October 2023, but still down 1 percentage point from a year ago. Room demand — measured by the number of hotel room nights sold — was up in luxury, upper-upscale and upscale hotels but flat to down in all other chain scales.
While Las Vegas was largely responsible for the decrease in national performance, there is some concern with average-daily-rate growth outside of Las Vegas, which was under 1% for the week. In the past six weeks, ADR growth without Las Vegas has averaged 0.5%, compared to 2.1% in the four weeks ending Feb. 3. During those four weeks, the upscale and upper-upscale chain scales grew ADR by 2.2% and 1.8%, respectively, while luxury and economy hotels went backwards in the metric. In the past six weeks, ADR growth for upscale hotels has slowed to 0.3%, and for upper-upscale hotels rates have declined 0.2%.
Furthermore, ADR in the top 25 markets, excluding Las Vegas, has only advanced 0.1%, compared to gains of 2.5% earlier in the year. Phoenix and New Orleans have reported the largest ADR decreases, down 10.6% and 6.5% respectively, during the past six weeks. The good news is that in the most recent week, the top 25 markets, excluding Las Vegas, advanced ADR 1.4% — the largest gain since the week ending Feb. 3.
While Las Vegas dampened overall industry performance, 90 of 171 markets reported RevPAR declines versus an average of 105 markets over the previous five weeks.
Naples, Florida, posted the largest RevPAR growth, up 27% likely due to rediscovery post Hurricane Ian, which occurred in September 2022. RevPAR in Naples has grown by double digits in six of the past seven weeks.
Among the top 25 markets, four markets reported double-digit RevPAR growth: Seattle (+22%), Anaheim (+21%), Washington, D.C. (+11%) and New York City (+10%). Las Vegas (-41%), New Orleans (-19%), San Francisco (-19%) and Phoenix (-11%) were at the bottom this week.
The decrease in Las Vegas was due to ADR, which dropped 36.6%, along with a 6.3-percentage-point fall in occupancy. The ADR decrease was widespread across all hotel types. Occupancy in the market remained strong at 84.2%.
Excluding Las Vegas, U.S. weekday RevPAR increased 1.9% all on ADR growth as occupancy was down slightly. Weekend (Friday and Saturday) RevPAR went backwards 3.1% mostly on falling occupancy. Weekend occupancy however reached 71.3%, which was the highest level since November 2023. In the top 25 markets, weekday RevPAR excluding Las Vegas was up 5.2%, led by an ADR gain of 3.6%. Weekend (Friday and Saturday) RevPAR fell 3.5% on nearly equal decreases in occupancy and ADR.
Group demand among luxury and upper-upscale hotels rose 10%, marking the 11th consecutive year-over-year gain and the highest jump since early this year. Markets with solid group demand gains included Washington, D.C.; Anaheim; Orlando and Atlanta. Despite the demand gain, group ADR fell 2.3%. Without Las Vegas, group ADR was up.
Global Performance
As expected, demand in Indonesia softened with the beginning of Ramadan. Occupancy in the country was 45.7%, compared to 50.1% during the first week of Ramadan last year. Despite the demand drop, average daily rate rose 24%, but that was insufficient to offset the occupancy decrease, resulting in a 24.9% drop in revenue per available room.
Spain’s hotels posted 74.4% occupancy for the week, up 4 percentage points, which was the largest occupancy growth of the 10 largest countries outside of the U.S. based on hotel supply. Strong leisure demand continued to drive performance.
Despite a slight decline in revenue across global markets outside of the U.S., hotels in some countries had a solid week.
Occupancy in the Canary Islands was up 5.5 percentage points to 85.5%, and with ADR growing 17.7%, RevPAR increased 25.8% for the week. RevPAR in the Mediterranean Coast was up 11.1%, supported by higher occupancy and rates. Madrid also posted strong growth as RevPAR grew 16.6%, led by an 8.5% ADR gain.
Mexico posted its highest weekly occupancy since 2016 at 74.3%, up 2.5 percentage points year over year, due to spring break leisure travel. Occupancy in the Mexican Caribbean market reached 81.3%, but ADR fell 4.1%. Yucatan/Campeche had the country’s second highest occupancy at 77.5%, and ADR grew 35.8% for the week.
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.