Market Recovery Monitor - 20 August 2022

For a fourth consecutive week, U.S. room demand declined week on week (WoW) with occupancy settling at 67.3%, which was 1.2 percentage points lower than the week prior. The decrease in room demand and occupancy is normal for this time of year. Falling by 460,000 rooms, the demand decrease was among the lowest of the past 22 years for this specific week. On average from 2000-2019, the WoW demand decline for this period was 4.1%. This year it was just 1.7%. Nominal average daily rate (ADR) fell 1.1% WoW to US$151, which is 17% higher than in 2019 and 10% greater than a year ago. Nominal revenue per available room (RevPAR) contracted 2.8% WoW to US$102. Nominal RevPAR remained ahead of 2019 by 12% and was up 17% from a year ago. Real (inflation-adjusted) ADR was ahead of 2019 (+1%) whereas real RevPAR was below that benchmark by 3%.

Unlike the previous week, demand fell across all days with the weekend (Friday & Saturday) seeing a slightly larger decrease (-2% WoW) as compared with -1.7% on weekdays (Monday-Wednesday) and -1.5% on shoulder days (Sunday & Thursday). Overall, the largest week-on-week declines were seen in non-Top 25 Markets (-1.9%), particularly on the weekend (-3%). We surmise that the primary driver of the demand declines is the start of K-12 schools. This past week, another nine states, including Texas, saw a significant increase (>50%) in the number of school districts beginning fall classes. Overall, 64% of K-12 school districts covered in STR’s 2022-23 School Break Report have begun the school year.

Weekday occupancy slipped one percentage point to 67%. Denver, New York, and Seattle all saw weekday occupancy above 75% as did 23 other markets outside the Top 25, with Portland, ME, posting the highest weekly occupancy of all markets (91%). Top 25 weekday occupancy mirrored the industry. Central Business Districts (CBDs), however, saw a sharper decline with weekday occupancy falling 2.5 percentage points week on week to 64%. There were a few standouts as Chicago, Los Angeles, St. Louis, and Tampa all saw weekday growth. CBD weekday occupancy ranged from 78% in the Boston CBD to 40% in the New Orleans CBD/French Quarter submarket.

While demand has decreased, the metric is nearing the levels seen in the comparable weeks of 2019 with this most recent week just one percent lower. Occupancy was 2.8 percentage points lower than in the comparable week of 2019 and 3.7 percentage points higher than a year ago. The difference between the demand and occupancy comparisons against 2019 is supply, which has increased 2.6%. Even with the seasonal drop in demand, eight markets, mostly in areas where school has not begun, saw their highest levels of demand since the start of the pandemic. That list included Albany NY, Pittsburgh, and Cincinnati.

Summer 2022 continued to rank as the fourth best since 2000 with no change from the previous week. Nineteen markets, including Atlanta, Austin, Charlotte, Dallas, Nashville, and Savannah continued to see their highest summer demand ever. Over the 12 weeks of summer thus far, three markets have seen occupancy surpass 70% in every week (San Diego, Seattle, and Oahu), with Oahu above 80% in the past eight weeks. Denver, Los Angeles, and New York City have been above the 70% threshold in 11 of the past 12 weeks. NYC continued to see occupancy trend down from its peak in early summer (89%) to 77% most recently. Chicago and San Francisco have also seen a decent summer season with occupancy above 70% in 10 of the past 12 weeks. New Orleans weakened further with occupancy dropping to 50%. The market has only surpassed 70% once this summer season.

Industry nominal ADR has fallen in each of the past four weeks, but the comparison with 2019 has strengthened. Three weeks ago, weekly nominal ADR was 15% greater than in the comparable week of 2019. Most recently, nominal ADR was 17% higher than in 2019. Real ADR also surpassed 2019 after being at a deficit in the previous two weeks. While industrywide nominal ADR was down, 40% of hotels reported at least a flat ADR percentage change with 6% of hotels seeing rate gains of more than 10% versus the previous week. The largest percentage of hotels (22%) with high nominal ADR growth (>=10% WoW) are small (under 75 rooms) economy class hotels followed by medium sized (between 75-149 rooms) upper midscale hotels, which make up 16% of the total. More than half of all the high nominal ADR growth hotels are in suburban (33%) and small metro/town locations (30%).

Similar to ADR, nominal RevPAR compared to 2019 has strengthened over the past two weeks, increasing from 9% to 12% greater than the comparable week of 2019. Real RevPAR also gained against 2019 with the most recent week’s result 3% less than in 2019. Three weeks ago, the deficit to 2019 was 7%.

Overall for the week, 140 of the 166 STR-defined markets had nominal RevPAR above 2019. In real terms, 86 markets are above that benchmark. Over the past 28 days, 74 markets were at “peak” as real RevPAR was above 2019. Slightly more markets (83) are in “recovery” as real RevPAR is between 80% and 100% of 2019’s value. Only nine markets, including Minneapolis, Philadelphia, Portland, and San Francisco, are in “recession” as real RevPAR is between 50% and 80% of 2019.

Around the Globe
Global occupancy, excluding the U.S., retreated slightly in the week, dipping to 68% from a pandemic-high 68.5% a week prior. Nominal ADR also declined (-2.4%) as did nominal RevPAR (-3.1%). As compared to all the weeks since the beginning of the pandemic, the week’s occupancy was the third highest with nominal RevPAR the fourth best. A week earlier, nominal RevPAR was the highest since the start of the pandemic.

Occupancy dropped in 47 of the 103 countries tracked on a weekly basis. The largest occupancy decrease was seen in the Bahamas (-10 percentage points), which likely coincides with the start of U.S. elementary schools. Costa Rica also saw a similar decline. Occupancy among the top 10 countries by supply was also down as all countries except Canada and Italy reported a decrease. With the increase, Canadian occupancy (78.3%) was at its highest level since summer 2019. Occupancy in China decreased for a second consecutive week, falling to 64.6%. The U.K. had the top 10’s highest occupancy at 79.7% followed closely by Spain (79.2%).

Forty-five percent of markets reported occupancy above 70%, led by Algarve, Portugal (91%). Most markets with high occupancy are in key leisure destinations like Italy, Portugal, Spain, Turkey, and the U.K.

Over the past 28 days, 53% of the 344 non-U.S. markets had real RevPAR above the same period in 2019. This was the highest percentage since the start of the pandemic. Another 30% of non-U.S. markets were in “recovery” with 18% in “recession” and 3% in “depression.”

Big Picture
This week’s data fell in line with our expectations with few surprises. If anything, we are pleased to see more moderate seasonal decreases than in the past. Next week might be a surprise for some in the U.S.. Based on 20+ years of history, we should expect a sharper dip in demand. This will be followed by a more moderate decrease during the week of Labor Day. Generally, demand will continue to wane as we enter the fall season. The wild card will be group demand. We continue to hear from clients of a strong fall conference season, which could further offset seasonal declines.