Excerpt from CoStar
During a presentation at the NYU International Hospitality Industry Investment Conference, hotel analysts shared positive projections for U.S. hotels.
Despite macroeconomic concerns, rising costs and challenging debt markets, hotel industry analysts are predicting stable, and even positive, performance and valuations for the year.
During the “Statistically Speaking” panel at the NYU International Hospitality Industry Investment Conference, CoStar hospitality analytics firm STR shared its revised 2023 U.S. hotels forecast, and HVS shared its outlook on hotel valuations.
Revised Forecast
STR and Tourism Economics have revised their full-year 2023 U.S. hotel forecast to show 5% year-over-year revenue per available room growth. STR President Amanda Hite said that’s a combination of 3.5% average daily rate growth and 1.4% growth in occupancy — despite the expectation of an economic slowdown through the rest of 2023.
While that 3.5% ADR growth is good for the industry, it doesn’t keep pace with inflation, which means hoteliers will struggle to achieve real rates at 2019 levels, especially in the latter part of the year, she said.
Industry growth is not something that normally happens when gross domestic product declines, Hite said. Prior recessions have shown a 1% drop in hotel demand for every 4% decline in GDP.
“We are not forecasting that, even in the quarters where we think there will be GDP decline,” she said. “In the third and fourth quarter, we will have positive growth much slower than what we've seen in the first half of the year, but still positive for the industry.”
With just over 150,000 hotel rooms currently under construction in the U.S., new supply won’t be much of a factor for the performance of operating hotels, she said. The new forecast calls for new supply growth of 0.6%.
Profit margins for the year through April were higher than in the same period of 2022, Hite said. Hotels outside of the top 25 markets had higher margins, which isn’t a surprise considering many hotels in the top 25 markets have higher operating expenses. The labor percentage margin is increasing, particularly in the top 25 markets.
The expectation is margins will be stable this year and next, but from a general operating profit perspective, margins will be slightly lower than at the end of 2022, she said.
The hotel industry faces many challenges, but the outlook is optimistic, Hite said. Employment levels are high and are expected to stay high. Consumers are pulling back on spending, but not on travel.
“They’re continuing to spend,” she said. “That leaves us very optimistic about the RevPAR growth that we’ll see for the remainder of the year.”
Click here to read complete article at CoStar.