Hotel Performance Improving, But COVID-Variant Threat Persists

CBRE, Dallas, said average daily rate gains and a 35 percent year-over-year occupancy increase showed demand for U.S. hotels endured in Q3 despite the Delta variant.

“Typically, when recovering from downturns, ADR growth lags occupancy gains,” said Rachael Rothman, CBRE Head of Hotel Research and Data Analytics. “The trend has reversed this cycle, owing to strong leisure demand and a nascent recovery in corporate and group demand.”

Continued improvement in domestic travel and the rollback of many international travel restrictions led CBRE to revise its near- and medium-term forecasts significantly upward. “Revenue per available room is now forecast to reach 2019 nominal levels by the second half of 2023 rather than in 2024, as previously forecasted,” the firm said in its December Hotel Horizons report. “Still, the identification of the Omicron variant and ongoing concerns about the pandemic continue to dampen business, convention and large-group travel. CBRE expects these categories of travel to accelerate in the latter half of 2022, starting in lower-cost, high-amenity markets. Denser, high-cost-to-operate urban markets dependent on international or large-group travel will likely recover more slowly.”

STR, Hendersonville, Tenn., said four key hotel profitability metrics, revenue per available room, gross operating profit per available room, earnings and total labor costs per available room, each increased in October

“October data was important to analyze from multiple angles,” said Raquel Ortiz, STR Assistant Director of Financial Performance. “The metrics were up quite a bit from September if you measure by available rooms, but that’s to be expected as October is usually a stronger revenue month due to conferences and group travel. When you extrapolate and bring in the comparison to pre-pandemic times, performance was lower. Fortunately, even with less corporate business this year, profit margins still came relatively close to what we saw in 2019.” 

CBRE noted the developing Omicron variant and the potential for additional variants increases the uncertainty surrounding any hotel sector forecast. “[But] while the hotel sector could face renewed travel restrictions, we expect higher occupancy levels from an increase in inbound international and business travel in 2022,” the report said.