CBRE: Hotel Market Sees 2023 Full Recovery
CBRE, Dallas, raised its hotel performance forecast based on first-quarter strength, slow construction activity, higher inflation and continued optimism about employment and economic growth.
CBRE now forecasts a full average daily rate recovery this year and a full revenue per available room recovery in 2023.
Despite headwinds from the Omicron variant, first-quarter RevPAR reached $72.20, up 61 percent from a year earlier. A 39 percent average daily rate jump and a 16 percent occupancy increase drove the RevPAR growth.
Trends strengthened over the quarter as Omicron concerns faded and spring break drove demand, CBRE said. First-quarter ADR was 5 percent ahead of 2019’s pre-pandemic levels, marking the third consecutive quarter with levels exceeding the same period in 2019. “These rising rates demonstrate that travelers are not price-sensitive in many peak-demand markets,” the firm’s Hotel Horizons report said.
Since year-end 2021, several factors including the Russia-Ukraine war, high gas prices and the 19 percent pullback in the S&P 500 have increased the risk of a potential slowdown, the report noted. But CBRE Econometric Advisors continues to forecast positive GDP and employment growth and continued elevated Consumer Price Index readings through 2023.
“To date, there has been no sign that the more than 50 percent increase in gas prices and the stock market’s hovering near bear-market territory are dampening hotel demand,” said Rachael Rothman, CBRE Head of Hotel Research & Data Analytics. “However, in the past, a steep decline in the S&P 500 and high gas prices have often caused RevPAR growth to decline, which raises the specter of a pullback in RevPAR later this year. Despite this possibility, our outlook remains that the market will continue to recover.”
CBRE said it continues to expect better relative performance in drive-to leisure destinations, particularly among high-end properties where consumers are less price-sensitive and inflation’s impact may be less severe. Higher gas prices, food costs and mortgage rates could dissuade budget-minded consumers who frequent interstate hotels from making travel plans.
Inflation continues to bolster hotel revenue growth but remains a headwind to margin expansion given rising wages, utilities, food and beverage costs and insurance increases, the report said. Historically, luxury hotels have had the greatest pricing power.
Longer term, muted supply growth should bolster top-line revenue growth. High construction-material prices, including lumber, steel and labor, make developing new properties cost prohibitive. CBRE now calculates hotel supply will increase at a 1.2 percent compound annual growth rate over the next five years, below the industry’s 1.8 percent long-term historical average.
