U.S. Hotels - October 2022 Commentary

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

• Occupancy: 67.2% (-2.4%)
• Average daily rate (ADR): US$155.63 (+16.8%)
• Revenue per available room (RevPAR): US$104.59 (+14.0%)

Key points from the month:

• U.S. hotel KPI indexes slowed month over month.
• The Halloween week shift, Jewish holidays, and Hurricane Ian all factored into October’s performance, but demand remained relatively flat compared with 2019.
• The Halloween and Ian impacts were most visible in weekend occupancy indexes, which declined considerably month over month.
• Weekday occupancy recovery remained in line with the prior month’s indexes as conference season wrapped up.
• Group demand remained strong and will likely continue as calendars are packed with events that were cancelled/postponed over the past two years.
• Other than the top Florida markets affected by Hurricane Ian, the Top 25 Markets held weekday occupancy indexes month over month, pointing to a strengthening in business travel. U.S. monthly demand exceeded the pre-pandemic comparable for the second time in the pandemic-era but first time this year. 
• TRevPAR and GOPPAR reached the highest levels for any month since April 2018.
• San Francisco continues to lag all other Top 25 Markets in terms of GOPPAR and TrevPAR recovery, but overall, the major markets have stabilized with small improvements each month.

The demand index declined month over month, with contribution from most days of the week.

This should not be a cause for concern because:

• demand was still strong
• playing with percentages/indexes this small, it is extremely unlikely to see a perfectly linear recovery trend.

The post-Q1 “zigzag” is what to expect going forward, as calendar shifts, weather-related impacts, and segment normalization (business vs. leisure travel) all impact demand and comparables to 2019.

Weekends have been super strong, while weekdays have been super weak. This is not old news, but it is finally starting to become outdated news as business has started to return.

It is evident from October as well that weekday occupancy recovery held month over month while shoulder days and weekend occupancy softened. That is not a bad sign but rather a sign of more normalization—October is a pretty business-heavy month and not known for a lot of leisure travel.

ADR followed a similar pattern although given the strength in rates this year, it is less remarkable when growth rates rise and fall from month to month. ADR recovery has been stable over the last several months, which is a good sign. Inflation is slowly starting to moderate, which means the counter via room rates is just as slowly moderating.

Chain Scales

October chains scale data followed the same pattern as September with one exception: Upper Midscale properties posted a slight decline in occupancy (-0.9%) compared with 2019. All scales continue to post double-digit ADR growth along with positive RevPAR percentage changes. Looking at YTD figures as 2022 winds down, upper upscale and upscale RevPAR remain below their 2019 comps (-5.2% and -0.4%, respectively). Both have been driven down by a drop in occupancy (-14.6% and -7.6%, respectively), but with slightly different stories. Upper upscale supply is +4.7% while demand is -10.6%. Upscale supply is the highest among the chain scales (+10.0%) with modest demand growth (+1.6%). The economy segment is positive across all KPIs with occupancy at just +0.1% as supply (-4.1%) has declined slightly more than demand (-3.9%).

Markets

Hurricane Ian made landfall in Florida as a category 4 on 28 September, meaning a touch of September and a lot of October data was impacted.

Evacuation mandates, material impact, and media coverage all play a role in the who/what/why of hotel stays during and after hurricanes.

Harder-hit areas expect increased demand from displaced residents, federal aid, insurance adjusters, and other hurricane relief and cleanup efforts. If occupancy growth is substantially higher in a market post-hurricane, one can assume that is not “normal” demand.

Less affected areas, or affected areas with extremely high, “normal” demand like Orlando, will likely just see occupancy come down. Part of that comes from media coverage, or concern around area safety, usability, etc. It is unlikely that relief efforts into Orlando could ever offset normal Disney demand for more than a few days.

Despite the hurricane, the Top 25 Markets had a decent October, with stable weekday occupancy recovery lifted by business demand.

This is different than “all other markets,” where occupancy recovery is flat (but strong) and rates continue to climb.

For all other markets, occupancy is basically back to pre-pandemic levels, making additional growth much more difficult to come by. Rates, however, have not yet peaked, so the delta between occupancy recovery and ADR recovery is growing.

Monthly P&L

U.S. hotel TRevPAR (US$236.91) and GOPPAR (US$96.32) reached the highest levels for any month since April 2018. Increased demand for groups, corporate and business travel have improved overall F&B levels, but those levels still remain below the 2019 comparable. Additionally, total labor costs are still on the rise due to competition for labor, hospitality unemployment levels and inflation.

When looking at the Top 25 Markets, San Francisco continues to lag in terms of GOPPAR and TrevPAR recovery, while Miami still leads the way. Overall, the major markets have stabilized with small improvements each month.

Latest Weekly Data

As expected, U.S. hotel performance came in lower than the previous week due to the Thanksgiving holiday. Nearly every market saw occupancy fall year over year despite more airline travel, which was 95% of 2019’s volume. A year ago, 89 of the 166 STR-defined U.S. markets saw occupancy above 50%. This year, 64 markets saw the same, which was close to the tally in 2019.