Market Recovery Monitor - 3 December 2022

Key Takeaways

• Room demand growth in the U.S. came in below expectations but was still strong
• Weekdays were weak, partly due to less group business
• Many Top 25 Markets showed a sizeable occupancy gap to 2019
• ADR grew below inflation again
• U.S. Upscale hotels performed quite well
• Global occupancy dipped a bit more
• The U.K. led Europe in occupancy
• The Middle posted strong occupancy

The week after Thanksgiving (27 November-3 December) was somewhat typical for the U.S. hotel industry. Occupancy increased to 55.4% from 50.3% in the week prior. Room demand was up 10% week over week (WoW), which was below our expectations, but still the second highest number of rooms sold for the week after Thanksgiving during the past 23 years.

The high for most rooms sold in the post-Thanksgiving week was achieved in 2019, and this year’s level was six percent lower. In 2019, occupancy reached 60%, also a record, while this year’s occupancy ranked ninth overall. After a week of lower growth, nominal average daily rate (ADR) strengthened 10.3% year over year (YoY) to US$142, which was the highest amount ever for the week. On an inflation-adjusted basis (real), however, that level was in the middle of the pack and below 2019’s value. Nominal revenue per available room (RevPAR) was up 11.7% YoY to US$79, which was also the best since 2000. Real RevPAR was below 2019 by US$10. Real RevPAR had been above 2019 in five of the previous seven weeks.

Fort Myers had the highest hotel occupancy in the nation during the week (81.1%) followed by Miami (80.4%) and New York City (77.9%). Miami and NYC also led the Top 25 Markets with Phoenix (68.6%) as the next closest. New Orleans was the only Top 25 Market to top its 2019 occupancy level. Among the remaining U.S. markets, 38 posted occupancy above 2019. Most of the markets in that group are rural or in smaller locations, led by Fort Myers, which continued to see high occupancy post-Hurricane Ian.

Business travel did not start in earnest after the holiday as occupancy from Monday through Wednesday (weekday) was down an average of 8 percentage points (ppts) as compared to 2019. Shoulder days (Sunday & Thursday) and the weekend (Friday & Saturday) showed much less of a gap to 2019 (-2.9ppts & -1.1ppts, respectively). Taking a closer look, this was the worse weekday performance since the week of Halloween as more than 80% of markets saw an occupancy deficit to 2019 with 29% of markets posting a gap of 10ppts or more. In the six weeks prior to Halloween, an average of 16 markets saw that large of an occupancy gap.

San Francisco showed the largest occupancy deficit (-31ppts) and had plenty of company from the Top 25 Markets as most reported a gap larger than -10ppts, including Boston, Chicago, New York, and Washington, DC.

It is possible that 2019 was an outlier. Comparing this most recent daily occupancy to the 10-year average by day (2010-19) for the week after Thanksgiving, the weekday deficit was not as significant (-3.6ppts) with shoulder and weekend occupancy above the 10-year average.

Among hotel types, Luxury and Upper Upscale hotels were the weakest as compared to 2019 with a weekday occupancy gap greater than -18ppts. Upscale hotels didn’t do much better as their weekday occupancy deficit to 2019 was -15ppts, with occupancy at 59.9% and the highest of any chain scale this time around. Upper Midscale weekday occupancy reached 57.7%, 6.7ppts lower than in 2019 with room. Midscale and Economy were the closest to their 2019 weekday occupancy levels (-1.7ppts & -0.4ppts, respectively).

For the full week, Luxury posted the highest occupancy (60.6%) followed by Upscale (60.5%). Upper Upscale wasn’t too far behind at 59.0%. While lower than the previous three, Upper Midscale (57.5%) saw its highest post-Thanksgiving room demand since 2000.

Part of the weekday weakness for the upper-tier hotels was because of lower group demand, which was 28% lower than what it was in 2019. This becomes much clearer when looking at hotels by size. In 2019, 61% of large (300+ rooms) upper-tier hotels had weekday occupancy above 70% for the week after Thanksgiving. This year, only 26% were at that occupancy level with a third reporting occupancy below 50%. Group was a significant driver of the decrease versus 2019, but not all of it, as transient occupancy was also down.

Weekend occupancy reached 64.5%, which was the third highest post-Thanksgiving level of the past 23 years behind 2019 and 2021. Forty-one markets reported weekend occupancy above 70%, led by New York City (90%) and followed by Sarasota, FL (87%), and Miami (86.7%). New York City weekend occupancy has reached 90% or greater nine times this year, with eight of the occurrences coming since September. During the same 14 weeks in 2019, occupancy surpassed 90% a total of 10 times.

After a week of year-over-year ADR growth less than the rate of inflation, nominal ADR advanced 10.3% YoY, which was less than the growth rate seen before the holiday. The difference between the recent week’s gain and those prior to the holiday is weekdays. Since early in the year, weekday ADR has been increasing faster than weekend ADR on a year-over-year basis. Over the past 12 weeks, the gap between weekday and weekend ADR growth was nearly 7ppts. In this most recent week, the gap narrowed to just 2ppts. Atlanta, Austin, Nashville, Orlando, San Francisco, and Washington, DC are a few of the 83 markets that saw their weekday-weekend ADR gap shrink when compared with the weeks before the holiday. Even with the smaller gap, weekday ADR was up 11.2% YoY with weekend ADR rising 9.2% YoY. Full week ADR increased 11.9% YoY in the Top 25 Markets versus 7.9% in all others.  

The highest ADR was in Maui (US$470) followed by Miami (US$375), New York City (US$356), and Hawaii/Kauai (US$317). Sixty-nine percent of the 166 STR-defined markets saw ADR rise by more than 5% YoY with a third posting gains of 10% or more. Thirteen markets, led by Louisiana South and the Florida Keys, saw weekly ADR fall with both those markets dropping by more than 10% YoY—the former reversed after sharp ADR gains in fall 2021 following Hurricane Ida.

With lower year-over-year ADR growth, RevPAR was also off trend. In the 12 weeks before Thanksgiving, nominal RevPAR increased an average 23% YoY per week. This past week’s gain was half as much. As compared to 2019, real RevPAR was 12% lower. This was the second time of the past seven weeks where real RevPAR was below 2019. Despite the weaker performance, most markets (97) posted real RevPAR above 2019 over the past four weeks. Only four markets (New Jersey Shore, Oakland, San Francisco, and San Jose) were in STR’s “recession” category as real RevPAR was between 50% and 80% of what was seen in 2019.

Around the Globe

Outside of the U.S., occupancy decreased by 1.9ppts week over week to 61.8%. This was also 5.9ppts behind the comparable week in 2019. ADR (US$131) increased 0.8% compared to the previous week, which was 22.6% ahead of 2019 and 25% higher than a year ago. Sixty-nine of the countries tracked on a weekly basis saw a week-over-week drop in occupancy whereas only 16 noted a year-over-year decrease.

Northern Europe again saw the highest occupancy of any subcontinent (77.2%), up 1.2ppts compared to the previous week and just 1.3ppts below 2019. The UK saw the highest occupancy of any European market at 78.9%, supported by markets such as London, Leeds, and Edinburgh. The Middle East is also seeing positive performance, with occupancy levels for last week at 76.9%, up 7.1ppts from the comparable week in 2019. Saudi Arabia, Qatar, and United Arab Emirates all helped to boost performance for the wider region. 

Northeastern Asia saw the lowest occupancy at 53.3%, down 4.4ppts compared to the previous week. This was driven by China, which saw a 3.8ppt drop compared to the previous week and was 15.5ppts lower than in 2019. While occupancy levels are suffering, ADR levels for Northeastern Asia are on the up, increasing by 4.6% week over week.

Over the past 28 days, 18% (62 of 344) of non-U.S. markets remained in “recession” (real RevPAR indexed to 2019 between 50 and 80) with 29% in “recovery” (real RevPAR indexed to 2019 between 80 and 100) and the majority at peak real RevPAR.

Big Picture

The week was typical albeit a bit lower than what we anticipated due to the unexpected weakness in weekday performance as compared to 2019. It is too soon to judge if weekday underperformance, relative to the weeks before the holiday, was due to economic concerns or just a change in behavior such as individuals vacationing longer given flexible work schedules. We believe that demand will grow again in the week ending 10 December before slowing ahead of Christmas.