NASHVILLE, Tennessee — Given the overall strong recovery in demand and the resulting pricing power that has afforded US hoteliers, industry experts are confident in hoteliers’ ability to keep driving rates into 2023.
During the “Hotel Industry Outlook” general session, STR President Amanda Hite said the revised 2022 industry forecast did not significantly change its revenue-per-available-room projection compared to STR’s previous one.
It increased RevPAR for this year from $92 to $93, a reflection of what hotels are actually achieving. Average daily rate has been stronger than anticipated while demand has been slightly less than forecast, so the occupancy and ADR numbers in the latest revision are a reflection of the situation this year.
When looking to 2023, STR raised ADR by a few dollars to $152 and dropped occupancy by less than 1%, Hite said. Oxford Economics also revised its gross-domestic-product forecast down slightly.
“That’s a reflection of that macroeconomic GDP number going into the model,” she said. “We’re still really positive.”
The US hotel industry is set up to be resilient to all the uncertainty facing hoteliers each day, a situation they have already lived through for the last two-and-a-half years, Hite said. The outlook is positive with expectations for good growth over the next couple of years.
The last two-and-a-half years have been a roller coaster with demand hitting surprising highs in the summer of 2020, packing resorts with leisure travelers before going down then up and down again, Omni Hotels & Resorts Chairman Peter Strebel said.
“Since about February, we’re seeing the climb up, and every month gets stronger and stronger and stronger,” he said. “We’ve been beating, as a company, ’19’s numbers since April consistently, so I think the past is behind us and I’m very, very happy about the future.”
The second quarter was the first time Host Hotels & Resorts performed better relative to 2019 each month, said Sourav Ghosh, executive vice president and chief financial officer of the hotel real estate investment trust. Rate has been a strong point, primarily in leisure and Sunbelt markets, and the growth opportunities lie in urban downtown hotels.
“We expect for next year to see more growth in volume as opposed to rates,” he said. “You’ll see some tempering of rate as all the hotels are getting back to normal levels of business mix, but then you will hopefully see the business transient continue.”
The sustainability of leisure demand will be market- and asset-specific, Ghosh said. There are certain hotels in Host’s portfolio that are unique and destinations in themselves, such as the 1 Hotel South Beach and the Alila Ventana. When looking at ultra-luxury hotels, it doesn’t matter what gas prices are.
“They’re debating whether to take the smaller private jet or the large private jet,” he said. “Different price points altogether.”
During the second quarter, Host’s leisure resorts had rates up 77% relative to 2019, Ghosh said. He expects that number to temper, but he wouldn’t consider the change from being up 77% to 2019 to being up 40% a slowdown.
“I would not expect that 70% to be where it stabilizes as business comes back to normal, but certain hotels have frankly, like the 1 Hotel South Beach, I won’t be surprised if the new normal is somewhere between 40% and 50 % from where we were in ’19.”
It’s incredible to look at ADR because of how it’s grown in the US, Hite said. While hoteliers want to go back to 2019 levels, they have to factor in inflation because there are real increased costs for hotels. While hotels will recover ADR and RevPAR to 2019 levels on a nominal basis, it will take until about 2025 to recover on an inflation-adjusted real basis.
The focus on profitability was a strategy that went up and down the chain scale, she said. Hotels have crystallized their thinking around profitability so much during the pandemic because they had to price the rooms for what they needed to cover costs and operating expenses.
One of the lessons learned during the summer of 2021 was that when Omni’s hotels did not have enough employees to fully staff hotels for the demand levels, it reduced occupancy at some of its properties, Strebel said.
“We have four resorts in all of ’21 that we never sold more than 75% occupancy, and we had record profits, higher than we’ve ever had in those resorts, even better than ’19,” he said. “In this industry, we’ve always thought, ‘Sell out, sell out, sell out, sell out.’
“Now that we’re looking at the profitability and the type of customer you have, you don’t really need to sell out to be profitable. It needs to have a better experience and have more service offerings and be able to serve your customer.”
When looking at the last two recessions in the US, the Great Recession and the one following 9/11, the hotel sector was more meaningfully affected than any other sector, Ghosh said. There were large drops in demand for hotels, and on top of the overall financial crisis in the Great Recession, there was also a stigma for business travelers staying at high-end resorts.
Looking at conditions now, there are some differences, he said. The supply picture is different, with projections of about a 1% increase in supply compared to the long-term average of 1.8%, and that should help the hotel sector.
Along with corporate balance sheets, consumer debt is in a better place, he said. Both corporations and consumers have more money in their pockets. Even now, there’s still pent-up demand for travel.
“I don’t think that revenge travel is done yet,” he said, adding the same is true for business travel. “There’s still a lot of growth to be had.”
The US could end up in a scenario where there is technically a recession, but there’s still going to be growth because of how far the industry fell during the pandemic, he said. It’s still recovering demand, particularly on the business-to-business side, as well as group to some extent.
Hite agreed with Ghosh’s assessment, adding that the industry made it through COVID-19 and the demand drop that came with it.
“If we do go into a mild recession, you’re not going to see a wholesale drop in demand across the board,” she said. “There may be some softening in some areas from a certain type of customer, but I think we’re in a very good position to maintain where we are and still grow a little in many areas.”
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