STR Weekly Insights: 28 April – 4 May 2024

Analysis by Isaac Collazo, Chris Klauda, Will Anns

Countries (markets) mentioned:

• United States
• Global: United Kingdom (London, Manchester, Edinburgh, Glasgow), Germany, France, Spain (Madrid, Barcelona, Canary and Balearic Islands) and Italy

Highlights

• U.S. RevPAR flat YoY
• Top 25 Market RevPAR flat, while the rest of the country posted modest growth.
• Most positive performance in Upper Upscale and Upscale chains
• Group demand and ADR returned
• Labour Day holiday impacted performance in Europe

U.S. RevPAR

U.S. hotels saw surprisingly modest performance this week following the previous down week during Passover. Revenue per available room (RevPAR) increased 0.5% year over year (YoY) as average daily rate (ADR) showed a slight increase (+1.3%) but was offset by an occupancy decline of 0.5 percentage points (ppts). Over the past eight weeks, performance has slowed with RevPAR on average increasing just 0.8%, a result of ADR up 0.9% and occupancy down 0.2%.

In anticipation of our upcoming forecast revision, our focus is shifting away from national averages and individual market highs. Instead, we're delving deeper into the bifurcation of chain scale performance as well as examining the dynamics between Top 25 Markets and those traditionally drawing in more middle-income, leisure travelers. These comparisons hold the most significance at this point in the cycle, particularly in understanding the pulse of the industry right down to the individual property level. Our forecast will be released during the NYU International Industry Hospitality Investment Conference on 3 June.

Top 25 Markets flat with declining weekday performance offset by an improved weekend

The Top 25 Markets saw flat RevPAR as ADR was up (+0.5%) but occupancy fell (-0.3ppts).  Poor weekday results (RevPAR: -2.6%) influenced the week as weekend RevPAR increased 3.1% and shoulder days (Thursday & Sunday) were essentially unchanged (+0.2%). This was a departure from past weeks where weekdays were strongest and weekends weakest. The rest of the country saw slightly better RevPAR growth (+0.8%) on stronger ADR (+1.9%) but a sharper occupancy decline ( -0.7ppts). Shoulder days were strongest in these markets with RevPAR up 1.3% followed by weekdays (+0.7%) and weekends (+0.4%)

Polarized chain scale results

Results were subdued across all the chain scales. The largest RevPAR declines were in the Economy (-4.8%) and Luxury (-2.3%) chain scales. The latter was driven entirely by falling ADR (-3.1%) whereas the former saw equal decreases in occupancy and ADR. Economy demand continued to decline, falling by 3.5% after lesser decreases in the prior two weeks. We believe the impact of inflation, higher debt levels and higher debt costs (interest rates) are driving some of the segment’s decline along with a multitude of other factors, including less temporary housing needs, limited contractors, etc. Earlier in the year, Midscale RevPAR declines were at the same magnitude as Economy, but over the past five weeks, the segment has outperformed Economy with this latest week’s decrease at -1.5%. RevPAR for Upper Midscale was flat with Upper Upscale and Upscale both posting gains (+1.2% and +0.9%, respectively).  

The chain scales remain bifurcated as demand is growing, in decreasing order, among the upper-tier chains (Luxury – Upper Midscale) but falling in Midscale and Economy. This pattern has been seen in most weeks of the year.  As stated earlier, we believe the fall in the lower-tier chain scales is economically driven.

Top 25 Market Upper Upscale and Upscale hotels doing the best

Luxury hotels in the Top 25 Markets recorded the largest weekly RevPAR decline (-4.7%), due almost entirely to falling ADR (-4.4%). While demand has grown in every week of the year, ADR has vacillated likely due to changes in customer mix. Supply in the chain scales has also been on the rise, which could also be adding pressure on ADR.

Economy posted the next largest RevPAR decline (-4.0%), which was close to its eight-week average
(-3.9%). Midscale followed as RevPAR was down 2.8% in the most recent period and 1.4% for the past eight weeks on average. Upper Midscale RevPAR was flat both this latest week (-0.5%) and for the past eight weeks (-0.3%). Upper Upscale and Upscale saw better performance. Upper Upscale RevPAR was flat most recently (-0.1%) and positive (+1.3%) over the past eight weeks. Upscale RevPAR increased 0.3%, contributing to 1.0% average gain over the past eight weeks. Outside of the Top 25 Markets, all chain scales, except Economy, recorded stronger RevPAR results, a change from what we have seen in most weeks of the year.

Group demand returned but weaker

Group demand in Luxury and Upper Upscale hotels returned this week after the previous week’s slowdown, however, the year-over-year comparison was basically flat (-0.4%). That was the first time this year, excluding calendar shifts, that group demand did not show a significant increase. Group ADR increased 3.2% as it has most weeks.

More of the same globally

Outside of the U.S., global KPI comparisons remained positive, but there were some fluctuations due to shifting public holiday calendars. The U.K. saw a large occupancy gain (+5.6ppts to 77.7%) as the Early May Bank Holiday moved from 1 May 2023 to the 6 May 2024. This resulted in higher occupancy gains across the country: London +4.8ppts, Manchester +3.6ppts, Edinburgh +5.4ppts, and Glasgow +7.9ppts. RevPAR in the country increased 6.9%, all on occupancy, as ADR decreased.

While the date of Labour Day holiday remained on 1 May, the day of the week shifted from Monday last year to Wednesday this year. The shift resulted in occupancy decreases in France, Italy, and Germany. Only Spain saw occupancy increase (+1.5ppts). A slight YoY decline in the cities of Madrid (-0.5ppts) and Barcelona (-1.1ppts) was offset by gains in the Canary and Balearic Islands (+4.4ppts and +1.7ppts, respectively). RevPAR in Spain advanced by 10.0%.  While occupancy was down in France and Italy, ADR increased 5.3% and 5.4%, respectively. RevPAR in Germany declined 8.5%.

Looking Ahead

We will monitor performance across the U.S. chain scales and the Top 25 Markets as we see divergent trends. Air travel is on the increase, based on TSA screenings, but demand for the industry is falling. Headwinds in the form of inflation, high interest rates, and rising debt are likely having an impact on travel, especially among middle- and lower-income Americans. Outside of the U.S., the industry continues strong. However, what is happening in the U.S. may serve as a precursor to what will happen in other countries down the road.