The U.S. hotel recovery story that has unfolded over the past year has three distinct parts, and two of them have driven the outperformance over 2019’s numbers, according to STR, CoStar's hotel analytics company. Luxury-class hotels in resort locations have outperformed all other types of hotels because of robust demand and corresponding pricing power. Locations that offer leisure travelers access to the great outdoors or beaches have attracted the most customer interest since mid-2020 and that has not waned.
In addition, limited-service hotels in the midscale and economy segment in interstate and smaller metropolitan locations have recorded strong demand from small- and medium-size companies. Employees at these companies need to visit their customers, whether for sales or installation visits, and they frequent more-affordable lodging types. In addition, drive-to-vacations continue to appeal to leisure travelers and support steady demand in highway locations, often in budget-friendly accommodations.
These two demand sources drove industrywide revenue per available room, or RevPAR, in 2022 up 8.1% compared to 2019. But not all customer segments have seen demand return fully and especially upper upscale class hotels in urban or airport locations are still showing results well below their 2019 revenues. The lack of corporate business travelers can be traced to the structural change in office use and a stronger reliance on remote-work tools that allow business travelers to forgo physical trips. Cost-cutting measures, because of an expected mild recession, are also partially to blame for the lack of a full demand recovery for downtown hotels.
Looking ahead, there is some uncertainty about American leisure travelers’ behavior in a recession. It is possible that they will not forgo vacations, but simply trade down hotel classes to more-affordable accommodations. For very high-end travelers, recessions typically are not a large concern and, anecdotally, travel advisors do not foresee a slowdown in demand for luxury resorts.
Small- and medium-size businesses could be hit by a macroeconomic slowdown and therefore need to curtail their travel spending. The outlook for Urban, full-service hotels is mixed. While group demand recovered strongly and ballroom and meeting spaces in Upper Upscale hotels were well-filled, corporate transient demand continued to lag and there is no discernable catalyst on the horizon that would further accelerate the underlying demand driver for urban and airport hotels.