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U.S. Lodging Market is Expected to Recover Fully by 2023

6/09/22

This report provided by real estate services firm CBRE

CBRE is raising its forecasts of U.S. hotel performance for 2022 and beyond, based on Q1 2022 strength, continued slowing of construction activity, higher inflation and continued optimism about employment and economic growth. CBRE’s forecasts call for a full recovery in average daily rate (ADR) in 2022 and in demand and revenue per available room (RevPAR) in 2023.

In Phoenix, annual RevPar – a measure of occupancy and rate – is expected to surpass 2019 levels this year despite headwinds from the omicron variant. The region is forecast to come in at $100.32 in 2022 as compared with $98.52 in 2019. By next year, the market’s RevPar is expected to increase another nearly 11 percent to $110.82. Occupancy this year is likely to hit nearly 65 percent, which is still considerably below the pre-pandemic 71 percent in 2019.

“During the first quarter, Phoenix area occupancy improved to the highest level since the beginning of the pandemic, although the average daily rate remains the primary driver,” said Tucson-based Vice President, Branden White with CBRE Hotels Advisory. “As a drive-to leisure destination market with a higher-than-average ratio of upper-priced rooms, Phoenix has outperformed national trends over the past three quarters. This is in great part due to the Phoenix economy having expanded at a more rapid pace than the U.S. in recent years, and local hotel fundamentals are projected to exceed the national average going forward.”

Nationally, since year-end 2021, several factors, such as 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. However, for now, CBRE Econometric Advisors (CBRE EA) continues to forecast positive GDP and employment growth and continued elevated Consumer Price Index (CPI) 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’s 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,” she said. “Despite this possibility, our outlook remains that the market will continue to recover.”

CBRE Hotels Research continues to expect better relative performance in drive-to leisure destinations, particularly among high-end properties where consumers are less price sensitive, and the impact of inflation 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 top-line growth, but it is also a headwind to margin expansion given rising wages, utilities, food and beverage costs, insurance, and capital expenditure (CapEx) increases.

Historically, luxury hotels have had the greatest pricing power. Longer term, muted supply growth will bolster top-line growth. High construction-material prices, including lumber, steel, and labor, make the development of new projects cost prohibitive.

CBRE forecasts that 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. CBRE Hotels Research’s base case scenario forecasts do not contemplate a larger-scale war, a recession, nor a more acute COVID variant.





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