Higher hotel rates sustainable for now, but will eventually moderate

NASHVILLE, Tenn. — Average daily rates in the United States are hitting new highs as the hospitality industry recovers from the demand crunch caused by the COVID-19 pandemic, but is this growth sustainable?

Speaking at a panel titled “Are Today’s Rates Sustainable?” » to recent Hotel Data Conference, STR Product Analyst Letizia Rossi-Espagnet said they are for now – until and unless the economy and industry experience another downturn. Rate growth will eventually moderate, she said.

The total nominal average daily rate in the United States has never risen faster and is higher than it has been since 2007, Rossi-Espagnet said. The nominal ADR is currently around $155 in the US hospitality industry.

Rossi-Espagnet said three factors contribute to fare growth: inflation, leisure demand and volume versus price.

The 2019 Indexed Total Nominal US ADR shows that in September 2021, ADR rates recovered from the depths of the pandemic and then continued to rise at a rapid pace.

“In June, we are actually 15% higher than in 2015. But what happens when you take inflation out of the equation? It’s a much calmer view. said. “It actually recovered in September 2021, but then fell again and then went back up around April of this year. And it looks like it’s stabilizing…hovering around $100.”

She added that once the consumer price index starts to slow down, the ADR likely will too. In 2022, the CPI jumped to 8%, which is the highest since the 1970s. The CPI is expected to drop to around 3% in 2023 and then slow even more in 2024, she said.

Leisure demand is also a hot topic, as it has boosted ADR and occupancy in major US markets, she said. Pent-up demand and excess savings by Americans fueled the leisure boom.

Hotels of all classes — luxury and upscale, upscale and upper-midrange, and midrange and economy — are booking guests at higher occupancy rates and rates on weekends than during the week. For example, in the luxury and premium classes, the gap between weekday and weekend ADR is $20, and the occupancy gap is 13%, according to June cumulative data. 2022 from STR.

Compared to 2019, the June 2022 weekend ADR beats pre-pandemic levels, Rossi-Espagnet said. The weekend counts as two days in the week.

“The three collapsed classes are above 90% of 2019 levels,” she added. “Occupation [is] a bit struggling, but the weekend is clearly better than the weekday.”

In terms of segmentation, group demand in 2019 accounted for 32% of total transient and group combined demand. In 2020 and 2021, that number has dropped to around 21%. Then in 2022, group demand jumped 31% “and it’s growing…we’re growing at a much faster rate than in 2019,” she said.

“What’s even interesting about this is that we expected the rebound in groups to mean that more group rooms at a lower rate would drive rates down, but we haven’t seen that yet. Maybe the new tariffs are here to stay,” she added.

Rossi-Espagnet said 70% of luxury hotels had regained ADR to 2019 levels by June 2021. This compares to just 18% of other classes.

Looking now at 2022, almost 91% of luxury hotels have recovered their rate compared to 2019. However, other classes have caught up at this point.

She pointed to Miami as a “poster child” for high rates in the United States

“Miami is not representative of all markets in the United States, but I chose this one because it performed so well due to the pent-up demand and excessive savings that resulted in these new rates. , as well as great weather all year round,” she said.

The city lost its competitive edge in 2022 as more destinations opened up travel, but fares still haven’t come down, she said. Miami in 2021 was among the few destinations in the United States with minimal COVID-19 restrictions, she said.

Rossi-Espagnet noted that high luxury hotel rates do not inflate the total number in the United States. The luxury segment accounts for about 6% of total U.S. supply, she said.

While inflation is still on the rise, Rossi-Espagnet said real rates are stabilizing. Real ADR in 2026 is expected to be much more stable than it was between 2020 and 2021. Nominal ADR is also expected to slow once inflation subsides.

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