STR Weekly Insights: 10-16 March 2024

Note: The next weekly insights will run on 12 April. A quick analysis for the week ending 23 March is available on STR's LinkedIn. 

Analysis by Isaac Collazo and Will Anns

Countries (markets) mentioned:

• United States: (Anaheim, Atlanta, Las Vegas, Naples, New Orleans, New York City, Phoenix, San Francisco, Seattle, and Washington, DC
• Global: Indonesia, Mexico (Mexican Caribbean, Yucatan/Campeche) and Spain (Canary Islands, Madrid, Mediterranean Coast)

Highlights

• Second consecutive weekly U.S. RevPAR decrease
• Weakness in ADR growth persists
• Demand bifurcating, growing in upper tiers and falling in lower tiers
• Global RevPAR declines for the first time since 2021

U.S. Performance

U.S. revenue per available room (RevPAR) dipped for a second consecutive week and by the worst percentage (-3.5%) since the last week of 2023. Sixty percent of the decline came from average daily rate (ADR), which was down 2.1%. All but two chain scales, Upper Upscale and Upscale, saw RevPAR decrease with the largest decline in the branded portion of the chain scales occurring in Economy (-8%). Performance was down on all days of the week with the largest declines occurring on Thursday (-5.8%) and Friday (-6.7%). Weekdays (Monday-Wednesday) did better with RevPAR down 2.3%.

The Top 25 Markets saw steeper RevPAR declines that the remainder of the country (-5.2% vs. -2.1%), but the decrease in that group was mostly from one market, Las Vegas. Excluding Las Vegas, RevPAR in the Top 25 Markets was up 1.4%, and national RevPAR was down 0.6%.

Occupancy for the week attained 66.5%, its best since late October 2023. It was down one percentage point (ppt) from a year ago. Room demand was up in Luxury, Upper Upscale, and Upscale but flat to down in all remaining chain scales.

ADR trend concerning

While Las Vegas was largely responsible for the decrease in national performance, there is some concern with ADR growth outside of Las Vegas, which was under one percent (+0.7%) for the week. In the past six weeks, ADR growth without Las Vegas has averaged +0.5% vs. +2.1% in the four weeks ending 3 February. During those four weeks, the Upscale and Upper Upscale chain scales grew ADR +2.2% and +1.8%, respectively, while Luxury (-3.3%) and Economy (-0.5%) went backwards. In the last six weeks, ADR growth for Upscale chains has slowed to +0.3% with the measure falling -0.2% for Upper Upscale.

Furthermore, ADR in the Top 25 Markets, excluding Las Vegas, has only advanced +0.1% vs. the +2.5% seen earlier in the year. Phoenix and New Orleans have reported the largest ADR decreases (-10.6% and
-6.5%, respectively) during the past six weeks. The good news is that in the most recent week, the Top 25 Markets, excluding Las Vegas, advanced ADR +1.4%—the largest gain since the week ending 3 February.

Not all markets down

While Las Vegas dampened overall industry performance, less markets (90 of 171) reported RevPAR declines versus an average of 105 over the previous five weeks.

Naples saw the largest RevPAR growth (+27%), likely due to rediscovery post Hurricane Ian, which occurred in September 2022. RevPAR in Naples has grown by double-digits in six of the past seven weeks.

Among the Top 25 Markets, four markets reported double-digit RevPAR growth: Seattle (+22%), Anaheim (+21%), Washington, DC (+11%) and New York City (+10%). Las Vegas (-41%), New Orleans (-19%), San Francisco (-19%), and Phoenix (-11%) were at the bottom this week.

The decrease in Las Vegas was due to ADR, which dropped -36.6% along with a +6.3ppt fall in occupancy. The ADR decrease was widespread and seen across all hotel types. Occupancy in the market remained strong at 84.2%

Weekdays still improving

Excluding Las Vegas, U.S. weekday RevPAR increased 1.9% all on ADR growth as occupancy was down slightly. Weekend (Friday and Saturday) RevPAR went backwards 3.1% mostly on falling occupancy. Weekend occupancy however reached 71.3%, which was the highest level since the week ending 11 November 2023. In the Top 25 Markets, weekday RevPAR, excluding Las Vegas, was up 5.2%, led by ADR (+3.6%). Weekend (Friday and Saturday) RevPAR fell 3.5% on nearly equal decreases in occupancy and ADR.

Group demand among Luxury and Upper Upscale hotels continued to be strong, rising 10% for the 11th consecutive year-on-year gain and highest jump since early this year. Markets with solid group demand gains included Washington, DC, Anaheim, Orlando, and Atlanta. Despite the demand gain, group ADR fell (-2.3%). Without Las Vegas, group ADR was up.

Global industry entering next phase of recovery?

Global RevPAR (-0.4%) fell for the first time since early 2021. For an extended period, the industry had posted double-digit growth in the measure, but over the last four weeks, gains had been under 10%. The latest week’s decline was a result of falling occupancy, which was partially due to the start of Ramadan that started on 11 March and will continue until 9 April. Sharp ADR declines were also seen in Muslim countries.

Indonesia weakens

As expected, demand in Indonesia softened with the beginning of Ramadan. Occupancy fell -27.7ppts to 45.7%, which was below the first week of Ramadan last year (50.1%). Despite the demand drop, ADR rose +24%, but that was insufficient to offset the occupancy decrease, resulting in a -24.9% drop in RevPAR.

Spain

Spain posted the largest occupancy growth of the largest countries, based on hotel supply, with the measure rising +4.0ppts to 74.4%. Strong leisure demand continued to drive performance. The Canary Islands were up +5.5ppts to 85.5%, with ADR growing +17.7% and resulting in RevPAR growth of +25.8%. RevPAR in the Mediterranean Coast was up +11.1% largely supported by occupancy gains of +5.8ppts and an ADR increase of +1.2%. Madrid also saw strong growth as RevPAR grew +16.6%, led by an +8.5% ADR gain. Weekday and shoulder (Sunday & Thursday) nights are driving the occupancy increases for the capital. 

Occupancy in Mexico Jumps

Mexico posted its highest weekly occupancy since 2016 (74.3%, +2.5ppts) due to Spring Break leisure travel. Occupancy in the Mexican Caribbean market reached 81.3% (+0.3ppts), but ADR fell -4.1%. Yucatan/Campeche had the country’s second highest occupancy at 77.5%, up +3ppts with ADR growing +35.8%. 

Looking ahead

The bifurcation of the U.S. hotel industry is expected to continue into the second quarter, meaning room demand will grow in the upper-tier chains scales but will likely be flat to down in all other. Increasingly, we believe lower income travelers are being squeezed out of travel due economic pressures, which have become evident via increasing credit card delinquencies and rising debt. The slowing of U.S. ADR growth below the rate of inflation is also a concern and will be examined further. Expect the U.S. industry to pause in the week ahead of Easter. Globally, the industry appears to have reached its normalization period as RevPAR is no longer growing by double-digits.