Hotel Demand, ADR Could Approach Full Recovery Next Year
U.S. hotel demand and average daily room rates should near full recovery next year, a new forecast from STR and Tourism Economics said.
“We have essentially moved up the top-line recovery timeline by one year, with the caveat that improved RevPAR projections are largely due to higher daily rates,” said Amanda Hite, STR President. “ADR has risen more rapidly than we expected–in some cases, that rise was due to strong demand confronting capacity constraints, which enabled solid revenue management, while in other cases, the rise was more influenced by inflation.”
Hite noted RevPAR is further off pace when adjusted for inflation. “[RevPAR] will likely remain below 2019 levels until at least 2025,” she said. “Other than the first quarter of 2021, demand has mostly adhered to the forecast with strong leisure travel, slowly improving group business and an expected progressive increase in international arrivals next year.”
Of course, recovery differs by market and the individual hotel’s segment. And the increasing cost of labor is pressuring the bottom line, Hite said. “Recovery is progressing at a solid rate no doubt, but there will still be plenty of ups and downs along the way,” she said.
Marcus & Millichap, Calabasas, Calif., agreed hotels made up substantial ground during the spring and summer. “Loosened capacity restrictions, vaccine availability and pent-up travel demand led to a marked increase in trips taken and rooms occupied,” the firm said in its 4Q 2021 Hospitality Report. By July hotel occupancy had nearly doubled from where it started the year and July’s average daily rate surpassed the same metric from two years prior by 6 percent.
After a cautious pandemic period, buyers are looking to hotels again, Marcus & Millichap noted. “Despite the lingering challenges facing the lodging sector, investors are showing no signs of backing off. Hotel transaction activity has surged this year, with more properties changing hands between April and September than in all of 2020.”
In addition, though many anticipated widespread discounting during the pandemic, actual distress has been relatively limited and competition for listings has instead lifted sale prices for assets, Marcus & Millichap said.
“Travel activity entered the fall with strong momentum,” said Aran Ryan, Tourism Economics Director. “With improving public health conditions and sustained economic recovery, additional business and group travelers are expected to join leisure travelers, supporting further gains next year. The demand recovery, coupled with successful revenue management, has supported resilient hotel pricing, helping shorten the time it will take to recover 2019 revenue levels.”