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May 2024 Hotel sector prospects: bright spots and challenges

By Vaseline May31,2024

  • May 2024 Hotel Industry Outlook: Bright Spots and Challenges – by Anne R. Lloyd-Jones

There are a lot of mixed messages out there these days, consisting of some bright spots, some not so bright spots, and some challenges. Without a coherent theme, the biggest challenge may be developing a forecast for the sector as a whole. But we are undaunted and hereby present our current expectations for the US lodging industry.

Recent sequential GDP gains, lower inflation levels and continued strong job growth paint a positive picture of the US economy, but ongoing international conflict, the upcoming elections and uneven economic data have resulted in a lack of overall clarity. The specter of a recession remains, although it has diminished sharply from the concerns that characterized much of 2023.

The accommodation sector is also facing mixed messages. A review of STR’s monthly U.S. occupancy data shows that the industry experienced a modest decline in occupancy for 12 months, beginning in April 2023 and continuing through March 2024. The data for April 2024 was positive, but the shift from the Easter holidays from April to March makes it difficult to interpret these results. Was the 2023/24 12-month trend a one-year correction? Or is it symptomatic of a longer-term negative trend? The notable variation in results across property types, locations and demand segments makes sense – and consistent with the post-pandemic period to date – but further clouds the issue.

The group demand segment is one of the lodging sector’s brightest bright spots right now, led by strong conference pace and strong booking activity. The corporate group sector, particularly small business meetings and events, also continues to grow. Business travel is also a positive factor as the trend of returning to the office continues and negotiated rates have increased.

The current slow pace of supply growth is also beneficial for existing hotels. The sector is now reaping the benefits of the high construction costs and the limited availability and high financing costs that have seriously hampered new construction in recent years. As a result, most industry participants expect supply growth to be around 1% this year and to remain subdued in the coming years. However, the sector has learned to see these circumstances as opportunities. HVS therefore expects the supply to grow faster than current trends suggest. Some markets are also benefiting from increased restrictions on short-term rentals, reducing competition from these sources. However, the short-term rental industry continues to influence many markets, especially as travelers look for accommodation alternatives that can be perceived as more cost-effective.

Supported by the factors mentioned above, many urban markets are reporting positive results in both occupancy and ADR. Leisure markets are also showing positive trends, but we should keep an eye on it during the peak summer season, which was somewhat undermined in 2023 by broader concerns about the economy. An imbalance in international travel also played a role last year, as outbound U.S. travelers exceeded inbound vacationers. The incoming metrics show some improvement, but are still negatively affected by the strong dollar. And the revival of the cruise industry is a competitive factor that could also limit demand for lodging.

Although the pace of inflation appears to be slowing, room rates remain high compared to historical levels, increasing pressure on disposable income. The weak performance of the economy and the mid-range hotel sector reflects these trends, as real estate in these categories can be particularly sensitive to broader economic pressures.

Below you will find our latest forecasts.

Forecasting accommodation statistics

Source: STR (Historical), HVS (Prognosis)

Overall, the outlook is modestly positive, with limited supply growth the most influential factor. Continued weakness in demand growth could undermine yield management and lead to some pricing caution. Nevertheless, ADR growth is expected to remain positive in 2024, supported by continued growth in higher-end demand segments. As a result, RevPAR is not expected to keep pace with inflation in 2024, but should exceed inflation in the following three years.

About Anne R. Lloyd-Jones

Anne R. Lloyd-Jones

Anne R. Lloyd-Jones, MAI, CRE, is Director of Consulting & Valuation Services, National Practice Leader at HVS, the premier global hospitality consulting firm. Since joining HVS in 1982, Anne has provided consulting and valuation services for more than 5,000 hotels. Anne’s specific areas of expertise include market studies, feasibility analyzes and valuations. She is also an expert in the field of the valuation of management and franchise companies and brands. Her experience spans a wide range of property types, including spas and conference centers. She has appeared as an expert witness on numerous occasions, providing testimony and trial support in matters involving bankruptcy proceedings, civil litigation and arbitration. For more information, contact Anne at +1 (914) 772-1570 or [email protected].

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