The Americas | Asia Pacific | Europe | Middle East
In this global update, we take a journey through each of the four world regions – focusing on performance, pipeline, and factors that influenced the data in 2023, while also looking ahead to what’s in store for the rest of 2024.
Analysis by Jean-Claude Pedjeu
The Americas reported successful hotel performance in 2023, building on momentum formed during the post-pandemic period in 2022. The first quarter of 2023 started off with strong growth due to an easy comparison created by the Omicron-related travel bans and restrictions that were prevalent during early-2022. The remaining three quarters produced slower increases which steadily moderated as the year came to an end. Of the major hotel markets in the Americas, only Miami recorded a decline in revenue per available room (RevPAR), while 15 of those markets posted double-digit growth in the metric. RevPAR increases in all four of the region’s subcontinents were led by strong average daily rate (ADR). The highest occupancy growth was seen in the Caribbean and Central America.
As top-line recovery from the pandemic continued in 2023, the Americas’ bottom line showed the same level of momentum. All of the subcontinents, except for Central America, exceeded 2022 levels in gross operating profit per available room (GOPPAR).
Hotel performance across countries in the Americas reflected that of the major markets. The region enjoyed year-over-year growth in each of key performance metrics: occupancy (+1.2%), ADR (+5.1%), and RevPAR (+6.3%). The overall performance hinged on the United States, given its overwhelming share of the region’s inventory. Of the 15 countries considered in the region, 11 posted double-digit RevPAR growth YoY, while only Peru saw a decline in the metric (-2.2%) in this metric because of a 5.5% drop in occupancy.
Looking at subcontinent performances, only North America produced single-digit growth while each of the remaining three showed RevPAR growth in double figures.
The Caribbean’s occupancy rose 4.6 percentage points to 65.6%, yielding RevPAR growth of 7.5%. The subcontinent’s hotels also improved in aggregate ADR, by $34.51 over 2022 (or +11.8%). Growth in these two metrics drove RevPAR from $179.75 in 2022 to $215.97 in 2023, yielding growth of 20.1%. In 2023, the Caribbean saw the greatest gains in both ADR (+31.6%) and RevPAR (+27.4%).
Similar conclusions are valid for Central America and South America. Both saw impressive results in 2023 compared to 2022. Central America gained across the top-line metrics: occupancy (+8.4%), ADR (+8.7%), and RevPAR (+17.9%). In South America, occupancy rose minimally (+2.7%), while ADR (+21.9%) and RevPAR (+25.1%) grew by double digits.
Three resort destinations—the Bahamas, Jamaica, and Puerto Rico—benefitted from leisure travelers, yielding impressive KPIs, with Jamaica’s key performance metrics rising by double figures over 2022: occupancy (+12.2%), ADR (+15.7%) and RevPAR (+20.8%). The Bahamas reported double-digit increases in occupancy (+15.7%) and RevPAR (+20.8%).
Three South American countries (Argentina, Brazil, Chile) experienced significant RevPAR gains, each producing increases above 25% in the metric.
Moving north, inflation continued to be a drag on hotel performance. The United States saw declines in occupancy for the last nine months of 2023, while maintaining RevPAR increases thanks to modest ADR growth during those months. Full-year performance was solid due to the first three months when growth was strong, with RevPAR (+4.9%) being boosted by an ADR rise of 4.3%.
The word “recession” or “soft landing” had dominated the mind of forecasters over the past few years and was expected to take place during the second half 2023. However, it did not happen, and many economists expect a soft landing for the U.S. economy in 2024 that will include slowing GDP growth without a recession. U.S. GDP for 2024 is forecasted to grow 2.0% over 2023.
In STR’s latest hotel performance forecast with Tourism Economics, released at the end of January, occupancy is projected to reach 63.6% in 2024, with ADR and RevPAR anticipated to increase over 2023, +3.1% and +4.1%, respectively.
Moving forward, inbound international travel to countries in the Americas will be key to this year’s hotel performance. Softening of inflation and reduction of interest rates by the Feds should ease the pressure of the hotel industry in the region.
Analysis by Kelsey Fenerty
The Asia Pacific hospitality industry progressively normalized in 2023, with year-over-year occupancy and average daily rate (ADR) growth reaching single digits by year-end for many countries. Growth still varies significantly by country and market, but the variance now relates more to individual market drivers than to pandemic recovery.
India reported relatively soft occupancy growth in 2023, although the slowed growth represented a “reset” to normal travel patterns and shifting holidays rather than a true decline in demand, with traditional high seasons (Q1 and Q4) showing stronger growth than summer and monsoon seasons. In addition, India saw very strong growth already in 2022, even when set against historic highs, bringing it ahead of the recovery curve when compared to many other Asian countries.
Conversely, Japan had a slower 2022, largely due to not reopening its borders until October 2022 and since then in absolute terms of travelers also its reliance on China as a key source market. In 2023, the depreciating yen and relatively weak inflation helped draw in long-haul leisure demand from the United States, Europe, and Australia. These long-haul trips led to longer lengths of stay, which helped drive both occupancy and ADR growth and led to an extremely successful year. Since then, intra-Asian travel to Japan has grown rapidly, as short-haul flights made a stronger and faster recovery, with Southeast Asia bringing large numbers of tourists and business travelers alike.
The greatest regional outlier was Singapore, where occupancy began to decline year over year in Q3 due to a calendar shift in events, but the end of Q4 is when the real softening came. New supply was partially to blame for softening occupancy but wasn’t the only major factor. As an island nation with extremely limited domestic demand, Singapore is hugely reliant on international inbound demand. The lack of growth in inbound flights made an impact, as well as the fact that December is always low in the market.
While the nation was already expensive relative to the rest of the region, the premium on a Singapore hotel room relative to other countries increased significantly in 2023. A room in Singapore cost 275% more than one in Indonesia last year, up from a 250% premium in 2019. It is important to note that Indonesia, similar to Malaysia and the Philippines, is a largely domestic market with less reliance on incoming travelers, and inherently as such, rate movements will always tend to be less drastic as price sensitivity/elasticity is not the same. Additionally, the Singapore dollar was virtually the only currency to appreciate in 2023, meaning that the relative cost of intraregional travel effectively skyrocketed.
Increased competition, both domestically from newly opened hotels as 2023 was the start of the peak of new hotel supply from a very big pipeline of new and delayed projects, and more broadly as an international destination, led to occupancy declines in the market.
Such a huge region has and will continue to expect major variances in market drivers and performance. For major markets across APAC, however, the future is fairly bright. Revenue per available room (RevPAR) is widely expected to continue rising, led primarily by ADR as is historically common. Deceleration in RevPAR growth over the longer-term will be caused by slower occupancy growth, as supply growth is expected to remain robust over both the short- and long-terms.
After a few years of enforced bottom-line productivity, growth in many cost areas has subsided drastically, e.g. in utilities, sales and marketing. Importantly, labor cost, the largest item on the balance sheet, has also seen lower growth and aligned reasonably well with revenue growth as ADR levels increased more moderately as well.
2024 has the potential to be a normal year, where normal means stability for top-line performance as the final demand gap closes and ADR growth is more minimal. Outside macroeconomic risk with cost of debt, recession risk and construction cost, the main risk that remains is whether labor cost can be managed against to see increased profit margins as revenue growth is more limited.
Analysis by Will Anns
Europe’s hotel industry recorded a strong 2023, moving toward normalizing growth levels and a farewell to the challenges of the pandemic-era. By the third quarter, the European hotel industry had successfully returned to pre-pandemic room demand levels.
A feature of the year was the noteworthy performance of southern European countries, boosted by a strong return of U.S. travelers. This resurgence led to a considerable increase in average daily rate (ADR), particularly benefiting luxury hotels in the region. However, southern Europe also faced challenges, with wildfires sweeping through multiple countries during the peak summer season, highlighting the impact of climate change on travel plans.
Gains for the hotel industry varied in their makeup across the classes. Luxury hotels experienced more subdued year-over-year ADR growth in comparison to 2022. Conversely, lower-end classes witnessed higher ADR growth, after previously seeing an earlier return of occupancy levels.
Group travel, which has been on a slow, gradual comeback since the pandemic, displayed positive trajectory in 2023.The reintroduction of national and international business meetings, events, and conferences partly contributed to this upward trend.
The economic landscape presented a difficult picture, with the reality of high and rising interest rates throughout the year. While all European countries grappled with economic challenges, Germany was exposed more than others to higher gas price rises and subsequently entered a recession. This led to a slower return to 2019 hotel occupancy levels than other European countries, the majority of which managed to navigate the cost-of-living crisis, maintaining a level of resilience in the face of potential economic headwinds.
The 2024 economic outlook for Europe suggests that interest rates have reached their peak, with expectations for a decrease once stickier service-based inflation moderates. This is anticipated to alleviate pressures on discretionary spending, leading to a marginal rise in leisure travel spending as a share of consumption.
A noteworthy development is the anticipated increase of Chinese travelers this year to Europe, despite representing a small % pre-pandemic, raising the question of how the destinations of their travel compare to pre-pandemic trends. Chinese travelers accounted for just 3% in the Netherlands and 4.2% in Spain in 2019. There's an interest in whether the composition has shifted towards more Free Independent Travelers (FIT) compared to previously being mainly group based.
In Germany, the European Football Championships will stimulate leisure demand, as well as notable trade fairs marking their post-COVID return. In August, the world’s focus will be on Paris, where the Olympics are set to draw millions of spectators. The combination of these factors, coupled with other sporting events and concerts, is poised to drive Q3 performance. This will be primarily with ADR surpassing the already elevated results of the previous year, presenting lucrative opportunities for hoteliers.
Analysis by Kelsey Fenerty
The Middle East hospitality pipeline remains strong as the region continues to gain prominence as a premiere leisure destination and corporate hub. However, with EXPO 2020, the 2022 FIFA World Cup, and COP28 all now in the past, the focus of the region’s supply growth has shifted from Qatar and the United Arab Emirates into Saudi Arabia.
Saudi Arabia hotel supply increased at an average annual growth rate of approximately 3% between 2004 and 2023, which was roughly half of the 6% CAGR reported by the UAE and a fraction of Qatar’s 12% average annual supply growth.
That represent a significant contrast to the current active pipeline, which at 101,000 confirmed rooms, represents nearly 71% of Saudi Arabia’s existing supply. The Kingdom’s ambitious Vision2030 plan is evident in development plans, with Riyadh set to more than double existing rooms. The Jeddah and Saudi Arabia regional markets—locations of the Jeddah Central Project and NEOM giga-projects, respectively—anticipate more than 80% growth relative to existing rooms.
Even as Saudi Arabia has ramped up hotel development, neighboring UAE has started to ease off on new supply. While the UAE’s pipeline remains robust, the 31k rooms in development—nearly two-thirds of which are later-phase in-construction projects—represent just 15% of existing hotel rooms.
Location plays a key role in the UAE’s development plans as well, with pipeline rooms in highly-developed Abu Dhabi and Dubai representing a combined 20% of total existing rooms, and actual annual supply growth expected to remain below 4% through 2028. With the country’s largest markets so well-supplied already, development has shifted into up-and-coming leisure destination, Ras Al-Khaimah, where active pipeline rooms nearly equal existing rooms.
In the long term, the region’s increased supply is expected to be met, if not outpaced, by growing demand, while in the short-term, the Middle East is unlikely to escape the pipeline boom completely unscathed. Regional demand growth tends to run in line or just below supply growth, suggesting that while new rooms do require some time to fully absorb into market, oversupply is not a concern.
Average daily rate (ADR) is more volatile in the face of new supply, and rates have historically fallen as supply grows. However, the Middle East travel landscape has so changed over the past several years that concerns over rate loss are modest. An influx of luxury hotel rooms should help raise the market price ceiling and bring in experiential leisure travel, and the events and mega-events for which the region is becoming so well-known typically drive rate growth.