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LOS ANGELES COUNTY NEWS
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CBRE Hotels Raises Outlook for Second Half of 2022, Expects Continued Growth in 2023

10/12/22

This report provided by CBRE

CBRE is raising its forecast for hotel performance in Los Angeles and nationally on the heels of industry gains in Q2 2022 and the expectation of slightly positive GDP growth in 2023.

In Los Angeles, CBRE revised its forecast for the second half of 2022 to a gain in revenue per available room (RevPAR) of 38% year-over-year, up from the previous projection of 34.5%. The revision is predicated on the expected average daily rate (ADR) exceeding pre-pandemic levels this year in Los Angeles, reaching $188.10 (compared to $177.98 in 2019). It also assumes a 16.6% increase in demand year-over-year, up from the previous forecast issued in May 2022 that showed a 15.8% gain.

CBRE has also raised its forecast for Los Angeles hotel occupancy. In May, the projection was for occupancy to rise 12.8% in 2022, hitting 71.6%. Per the new forecast, occupancy is anticipated to rise 13.9% this year, reaching 72.3% occupancy in Los Angeles.

“The improved outlook for hotels in Los Angeles is attributable to sizeable increases in passenger traffic at area airports, especially international arrivals, which more than doubled on a year-over-year basis. Additionally, group and convention business has increased markedly while leisure demand remains robust,” said Brandon Feighner, executive vice president with CBRE Hotels Advisory in Los Angeles.

Looking ahead to 2023, CBRE projects occupancy, ADR, RevPAR and demand to continue to rise in Los Angeles, albeit at a slower pace than 2022. Occupancy is anticipated to increase 4.2% (reaching 75.4%), ADR to rise 3.3%, RevPAR to increase 7.6%, and demand to improve 5.8%.

Nationally, U.S. hotel industry performance was stronger than expected in Q2 despite a decline in GDP and the highest inflation in more than 40 years. Strength in the quarter was the result of continued improvements in group business, inbound international travel, and what may have been a peak in leisure travel this cycle.

CBRE’s baseline-scenario forecasts do not contemplate an international war, a pervasive recession, or a more acute COVID variant. CBRE also produces forecasts based on upside and downside scenarios.

“As we progress through the third quarter, it is worth noting that the brisk pace of demand recovery has begun to slow. We are seeing a pullback in ADRs in select record-setting markets,” said Rachael Rothman, CBRE’s Head of Hotel Research & Data Analytics. “Despite the slowing pace of growth, we expect the continued recovery in travel demand to be driven by incremental group and inbound international travel, followed by a modest uptick in transient business.”

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 ability to increase room rates to offset inflation.

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 too expensive in some cases. CBRE forecasts that hotel supply will increase at a 1.1% compound annual growth rate over the next five years, below the industry’s 1.8% long-term historical average.





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