U.S. Hotels – June 2022 Commentary

June 2022 Top-Line Metrics (percentage change from June 2019)

• Occupancy: 70.1% (-4.3%)
• Average daily rate (ADR): US$155.04 (+15.3%)
• Revenue per available room (RevPAR): US$108.64 (+10.3%)

Key points from the month:

• Monthly occupancy reached 70% for the first time in the pandemic-era.
• Lack of midweek business demand remains a drag on demand (and thus occupancy) recovery.
• Thanks to higher ADR, RevPAR grew over pre-pandemic comparables monthly, quarterly, year-to-date and on a running 12-month basis.
• Group demand recovery has caught up to transient demand recovery, and group RevPAR fell just $0.35 short of the pre-pandemic comparable.
• The number of rooms in construction continued to move downward and increasing interest rates suggest that will not change anytime soon.
• U.S. hotel profits surpassed the 2019 comparable for the third straight month
• Increased revenue from F&B and groups, on top of rising ADR, has been a primary reason behind profit growth.

Segmentation

Midweek business travel has been so slow to rebound that groups have overtaken transient demand growth.

Neither metric is in the black quite yet, but groups have rebounded rapidly over the summer, as all the cancelled/postponed events finally hit the calendar again.

Perhaps brisk group activity this summer bodes well for the upcoming group and convention season into late Q3 and Q4. We have at least another 6-12 months of pent-up events to get through, assuming the effects of inflation are not too significant on business travel and overall industry demand.

Top 25 Markets

For the major markets, not much additional occupancy recovery came about in June.

Top 25 weekend occupancy came down a little bit, which was likely a combination of Memorial Day weekend, which fell on the 30th and meant that the first full weekend in June was a bit light, and losing a Friday this month compared with 2019, which would have offset the Memorial Day weekend loss.

With that said, four markets pushed occupancy over 80% in June.

As we look beyond the largest markets, there is sharp evidence that warm-season, “play-oriented” destinations continue to fill rooms albeit at a slightly slower pace than last summer. For the week ending 16 July, Alaska was in first position with occupancy of 87.4%, coming in ahead of last year (86.4%) and right at the pre-pandemic comparable (87.4%). Portland, ME also showed a high occupancy level (84.7%) as a leisure-based destination in its warm season.

Further, among the 30 best occupancy markets outside of the major cities, a vast majority are oriented toward leisure travel. Still, only six of those 30 markets have had occupancies higher than the same period last year. This suggests that many of these leisure-dependent markets may have already seen a short-term peak.

Pipeline

Development showed more of the same with rooms in construction continuing to decline.

On a quarterly basis, under contract rooms fell dramatically in Q2. The number of rooms in the active pipeline have been holding around 630-640k since Q4 2020. That number dropped to 609k during Q2.

Supply growth is set to soften substantially. Even on a total-room-inventory basis, it was just shy of 1% in June. By this time next year, supply shouldn’t be a major issue even if demand is still lagging.

Monthly P&L

Estimated gross operating profit (GOP) surpassed the 2019 comparable for the third month in a row.  Increased revenue from F&B and groups, on top of rising ADR, has been a primary reason for profit growth. Profit margins have been strong the past 12 months but have been slightly reduced recently. Rising wages and costs have reduced margins, but hotels have also brought back services, amenities and F&B operations previously reduced, which have increased profits at lower margins. Labor costs increased greatly in June because of rising wages, increased occupancy and F&B operations, but benefits are still below 2019 levels stemming from more contract labor.

Latest Weekly Data

The week of 17-23 July produced the highest weekly occupancy since early August 2019 and the highest RevPAR on record. Read more in our latest Market Recovery Monitor.