U.S. hotel industry revenues have never grown during an economic recession, but Tourism Economics and CoStar's hospitality analytics firm STR is projecting just that to happen in 2023.

In his monthly video analysis of U.S. hotel performance, CoStar's National Director of Hospitality Market Analytics Jan Freitag said that projection is, in a word, "unprecedented."

Tourism Economics "is projecting that there will be a slowdown in GDP growth in 2023," he said. "The slowdown will be mild, only a 0.5% GDP contraction, and therefore the recession will be mild as well. And because of that, [hotel average daily rate] and [revenue per available room] growth are actually still positive in 2023. The growth rates were cut, but still 3% expansion on record-high rates is not nothing and RevPAR continues to grow, as well."

U.S. hotel room demand in October was within 3% of October 2019 levels — which Freitag described as roughly flat in that comparison — but RevPAR was up 23% year over year.

He said he doesn't expect a recession to derail the rebound of leisure, corporate and group hotel demand, but "it could slow it."

"The number of group rooms sold was 8.9 million for luxury and upper-upscale class hotels, and that's also basically back to the October 2019 number," he said. "The difference equates to just around 3%, as well. It will be very interesting to see what impact, if any, a mild recession will have on this chart."

It's clear meeting planners are feeling "pretty frustrated" by hotels' reluctance to accommodate them, Freitag said.

"Hoteliers are basically telling them, 'Hey, I don't want to displace my high-rated leisure demand with lower-rated corporate, group demand," he said.

Freitag said this line of thinking is short-sighted for hoteliers, knowing demand will be vital from all of those avenues going forward.

"It's my public service announcement here just to say, this is a cyclical industry, and in 2024 and 2025 we need those Monday, Tuesday, Wednesday group rooms back, association demand back," he said. "So remember to build a long-term relationship with those meeting planners that gets us through the next couple of years."

A wave of high-cost, high-profile hotel transactions were announced recently, particularly related with properties once associated with now-defunct REIT Strategic Hotels and Resorts.

The Four Seasons Troon North in Scottsdale, Arizona, was sold by Dajia Insurance Group to Braemar Hotels & Resorts for $267 million or $1.3 million per key, and Host Hotels & Resorts bought the Four Seasons Jackson Hole in Wyoming for $315 million or $2.5 million per key.

Freitag said these deals are signs of both the money flowing to REITs like Host and Braemar and an enduring bet on the strength of leisure travel.

The Montage Laguna Beach Resort Hotel in Laguna Beach, California, was sold to billionaire Tilman Fertitta for a reported $650 million or $2.5 million per key the month prior.

During the height of the pandemic, tech billionaire Bill Gates said he expected half of business travel to never return in a post-pandemic world.

Freitag said continued growth in business travel has proven that projection incorrect, but the ultimate fate of business travel is still hazy.

"Corporate travel demand is back mostly, and Microsoft Teams meetings — as efficient as they are — cannot substitute one-on-one or many getting together," he said.

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