• US Hotel Performance Expected To Improve Despite Economic Slowdown   

Excerpt from CoStar

During a presentation for PKF Hospitality Group's 196+ Summit Americas, CoStar's Jan Freitag explains the U.S. hotel industry's expected trajectory and how different hotel and demand segments are recovering.

Group Demand Is Back While Corporate Is 'Back-ish'

The U.S. economy is expected to slow next year while the hotel industry continues to recover and grow.

In a presentation during the PKF Hospitality Group's virtual 196+ Summit Americas 2023, Jan Freitag, national director of hospitality market analytics for CoStar, said hotel demand is expected to grow 1.8% in 2024.

That demand growth should translate to occupancy growth of 1% because hotel supply growth won’t be a big headwind for the industry, he said. In the past, the hotel industry has overbuilt heading into a downturn, but this time the higher interest rate environment is contributing to limited new supply of hotels.

The long-term average for supply growth is 2.1%, but the 2024 forecast is 0.8%, Freitag said. Room rate growth of 4.2% this year and 3% next year are basically at the current level of inflation. That means revenue per available room is expected to grow 4.8% this year and 4% in 2024, a “good conservative measure” given Oxford Economics forecasting zero GDP growth in the first two quarters of next year, he said.

In October, U.S. hotel industry room demand declined, so occupancy fell, Freitag said. The industry is selling 65%, or roughly two-thirds, of its rooms at a rate that is 3% higher than it was a year ago, so there’s still RevPAR growth. Earlier this year, the industry benefited from strong revenue growth due to easier comparisons from the year before.

The problem is the ADR percent change, he said. When overlaid against the consumer price index, costs have gone up faster than hotels have raised rates.

“Hotels historically have been seen as a hedge to inflation because obviously we set our prices every night,” he said. “Hoteliers have not really done that well.”

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