U.S. hotel commentary - August 2023

August 2023 Top-Line Metrics (percentage change from August 2022):

• Occupancy: 66.0% (-0.3%)
• Average daily rate (ADR): US$153.60 (+1.8%)
• Revenue per available room (RevPAR): US$101.35 (+1.5%)
   

August 2023 Bottom-Line Metrics (percentage change from August 2022):

• GOPPAR: US$61.53 (-4.3%)
• TRevPAR: US$191.55 (+0.1%)
• EBITDA PAR: US$38.56 (-11.6%)
• LPAR (Labor Costs): US$68.16 (+4.9%)
   

Key points

• Top-line performance remained stable in August, with demand almost flat, occupancy declining year over year, and ADR rising at a slower pace than inflation.
• At the chain scale level, Luxury hotels continued to impress as occupancy increased despite healthy supply growth. 
• After a slow summer, weekday group demand rebounded. Shoulders and weekends continue to underperform, with changing corporate office trends a consideration for the former moving forward.
• Top 25 Market performance suggests business and leisure travelers alike are flocking to the country’s biggest cities, increasing optimism ahead of winter.
• Rooms in construction dropped significantly as interest rate effects move through the pipeline.
   

U.S. hotel demand declined year over year (YoY) for the third consecutive month – and fourth of the last five. Following the easy Omicron comparisons during Q1 2023, U.S. hotel demand has trended between +0.0% and -1.3% YoY, which has provided an anemic growth trend as the nation resettles into post-pandemic normality.

As has been the case through most of the year, weekend occupancy declines remained the culprit behind August’s softer demand.

We have talked considerably about weekend demand declines, the reasons for the dip, and the impact on U.S. hotel demand.

Shoulders, however, have fared similarly. Shoulder day performance varies by market, with occupancy growth trending more in line with weekdays in the most business-based markets and more in line with weekends in leisure-led destinations.

Overall, shoulder days in the U.S. have trended more in line with weekends, as might be expected given the outsized leisure travel reported throughout 2022. However, there is one other factor worth considering.

While both transient and group business travel have strengthened substantially as the year has progressed, corporate America has broadly returned to office, and business patterns have changed. Monday and/or Friday are largely work-from-home days for many companies, and it’s not unreasonable to expect that the reduction in office staff – even in companies with limited WFH policies – has impacted shoulder day business travel. 

Rates continued to rise relative to 2022, although at a rate of only 1.2%. That means inflation outpaced ADR growth, and real ADR declined for the fifth consecutive month.

Fortunately, the strong rate growth reported last year has helped to hold real ADR near pre-pandemic levels. 

The cushion provided by last year’s growth will eventually wear away, however, if inflation continues to outpace ADR growth.

Chain scale performance

Demand continued to rise for four of the six chain scales in August, with business-heavy chains reporting 3-4% demand growth YoY.

Upper Midscale chains grew demand, but at only 1% YoY, so occupancy declined modestly as supply increased 1.5%.

Luxury demand really is the success story among the chains. With supply growth of 2.5%—well above 0.3% growth nationally—hotels at the top of the market have still captured enough demand to increase occupancy over the past two months. The segment continues to report YoY ADR declines but at modest enough levels to consider it a reset, not a problem. 

Markets

The Top 25 Markets continued to drive U.S. hotel demand in August.

More importantly, the Top 25 Markets reported a second consecutive month of weekend occupancy growth. July was a bit of a misnomer on that front, as the 4th of July holiday shift made for an easy YoY comparable, but modest improvement this month suggests that August vacations stayed a little bit closer to home.

Blended travel could be another culprit here, as business demand often picks up when schools resume.

In another twist, markets outside the Top 25 reported effectively no change in weekday demand YoY. 

Coupled with the relatively strong weekday growth in Top 25 occupancy – at 2.8%, the best weekday occupancy growth since Omicron-affected March – it does appear that business demand into the nation’s biggest markets is back on track.

That’s not to say the picture is 100% rosy for the Top 25 Markets. August occupancy declined YoY for 10 of the Top 25 Markets, although leisure-led destinations make up a lot of the lower end of the spectrum.

Pipeline

Rooms under contract increased again in August, but in-construction activity tumbled.

The month was notable for pipeline, breaking a 20-month trend of rooms in construction holding between 150-160k rooms.

The impact of high interest rates has been influencing rooms in planning and final planning for some time now, but construction levels had continued to hold. It’s possible now that, with rates likely at or near peak, construction activity will continue to drop as new rooms open and developers hold off on breaking ground with new projects.

Latest Weekly Data

The U.S. hotel industry saw a slow start to the week as the final day of the Rosh Hashanah observance held back travel. However, overall occupancy for the week rose to 68.5% from 67.7% in the week prior. Read more here.