U.S. hotel commentary - December/Full-year 2023

Note: All financial figures presented in $.

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

• Occupancy: 52.6% (-1.8%)
• Average daily rate (ADR): $151.13 (+2.1%)
• Revenue per available room (RevPAR): $79.42 (+0.3%)

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

• TRevPAR: $181.65 (+1.4%)
• GOPPAR: $52.75 (+3.1%)
• EBITDA PAR: $33.09 (+13.4%)
• LPAR: $70.15 (+3.4%)

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

• Occupancy: 63.0% (+0.6%)
• ADR: $155.62 (+4.3%)
• RevPAR: $97.97 (+4.9%)

Key points
 

• RevPAR softened each quarter after Q1 due to declining occupancy and moderating ADR.
• Quarterly ADR was up throughout the year, but inflation-adjusted ADR fell from Q2 onwards.
• The Top 25 Markets outperformed all others in aggregate.
• Group demand was stronger than transient each month but still below 2019.
• Upper Upscale and Upscale chains led industry performance, boosted by recovering weekdays and group demand.
• December results were impacted by the New Year’s Eve calendar shift.
• Annual total revenues and profits were up from 2022, slightly below 2019.
• F&B revenues aligned with improvements in group demand, especially for Upper Upscale and Upscale chains.

December produced the lowest monthly RevPAR gain of 2023 (+0.3%). Remember, the year started with easy comparables due to the Omicron impact in Q1 2022, but performance growth softened as 2023 progressed due to calendar shifts, increased outbound travel, and other factors revealing the beginning of a return to normal industry patterns.

December’s year-over-year RevPAR growth was also the lowest of the past 33 months. The month was impacted by a weaker holiday season and the shift of New Year’s Eve from Saturday last year to Sunday this year. Excluding the last day of the year, December RevPAR was up 1%.

The impact of calendar shifts became more evident as the year progressed. Full-year RevPAR increased 4.9% primarily due to the strong first quarter and 10.6% growth in average daily rate (ADR). That ADR growth moderated significantly throughout the year with December’s increase (+2.1%) lower than the average of +2.8% seen over the previous nine months.

Since April, occupancy growth has fallen, and demand has shifted by day type. For the latter, leisure days softened, while business travel days strengthened. Weekday (Monday-Wednesday) RevPAR increased 3.9% from April to December with shoulder days (Sunday & Thursday) up 1.8% and weekends (Friday & Saturday) barely increasing (+0.2%).

Chain Scales

The top three chain scales (Luxury through Upscale) saw demand growth in every month of 2023, increasing 5.5% for the year. Demand declined throughout the last three quarters of 2023 in Midscale and Economy with the latter registering declines ranging from -4.7% to -6.9%. Over the past five years, there appears to be a structural shift in the Economy segment with a significant number of properties closing and/or moving out of the segment.

After seeing record-breaking ADR in 2022, Luxury hotels reported a slight decline as ADR dropped from $428 to $424. The next three chain scales (Upper Upscale, Upscale, Upper Midscale) recorded ADR growth in every month of the year. Midscale and Economy saw mixed ADR performance with the measure generally down in the last half of the year.

December RevPAR percentage changes ranged from +2.8% in Upper Upscale to -6.9% in Economy. For most chain scales, full-year RevPAR growth was strong due to gains posted in Q1 against easy Omicron comparisons. Midscale and Economy were the only exception, which registered declines of -0.2% and -3.4%, respectively.

Segmentation

Group demand improved throughout 2023, exceeding 2022 levels in every month except December. Weekdays and shoulders drove the group gains while weekends declined. The weekend decline is likely due to the loss of pent-up leisure group demand (weddings and other family/friend gatherings) and the return to normal business patterns. Notable was the strong group shoulder occupancy in December, likely impacted by the NYE calendar shift.

Transient demand exceeded 2022 every month and was just shy of 2019 levels. All day types increased transient occupancy throughout the year with December transient shoulder periods seeing a NYE boost.

While occupancy strengthened for both segments, ADR revealed a different story. Group ADR continued to recover throughout the year, while transient ADR growth stalled, declining in seven of the last nine months.

Markets

The Top 25 Markets saw growing room demand in every month of the year, which was consistently stronger compared to all other markets. Weekdays produced the strongest gains for the Top 25 Markets with occupancy up 0.9ppts on average from April through December. Shoulder days were up 0.1ppts, while weekends declined 0.4ppts. In all other markets, occupancy was down, however, the pattern matched the Top 25 with weekdays showing the smallest decrease (-0.3ppts) followed by shoulder days (-0.8ppts) and weekends (-1.5ppts).

ADR growth in the Top 25 Markets was stronger than the rest of the country with every month since July producing a month-over-month increase. December ADR increased 2.6%, partially impacted by the NYE calendar shift. All but two of the Top 25 Markets—New Orleans and Miami—saw year-over-year ADR growth in 2023. Across the rest of the country, ADR growth continues at a slower pace than the Top 25 Markets.

Top 25 RevPAR was up 8.3% for the year as compared to 2.2% for all other markets. Excluding Q1, Top 25 RevPAR advanced 3.7% versus 0.4% elsewhere.

Profitability 

Total industry revenues and profits for the year were well beyond 2022 levels as pricing power continued to outweigh the impact of weakening demand. Improvements were especially notable in the Top 25 Markets and Upper Upscale chains because of demand growth.

While labor costs continue to grow, the monthly growth rate in LPAR was only 0.4%, which paired with healthy levels of revenue, led to GOPPAR growth.

Rising group demand pushed F&B revenues well past 2022, but when adjusting for inflation, F&B revenues were down 26.1% compared to 2019.

Pipeline

The number of rooms under construction decreased YoY in December following an almost 7% increase in October which held through November. Looking back the last five-plus years, December construction activity has always been lower than November. That is because projects in construction finish up, while new projects don’t break ground until after the holidays. For most of 2023, the number of rooms under construction continued to trail 2022.

Pipeline leaders—Upscale and Upper Midscale—continue to dominate the construction phase, however, the pace for these hotel classes has declined compared to 2022. Rooms under construction in these two classes have also slowed compared to last year, while Midscale and Economy rooms under construction increased.

Projects in planning, however, continue to grow with rooms in final planning up 19.7% and planning increasing 32.7%. Overall, more than 726,000 rooms (6,152 hotels) sit in the pipeline with rooms up 18.5% from last year.

Latest Weekly Data

U.S. hotel occupancy (52.2%) dipped slightly during the week ending 20 January as a result of the MLK holiday and severe winter weather. However, events like the NFL Playoffs and 2024 Election primaries drove growth in certain markets. Read more here.