STR Weekly Insights: 3-9 September 2023

Analysis by Chris Klauda and Isaac Collazo

Countries included: United States, Canada, China, Denmark, El Salvador, Fiji, France, Germany, Indonesia, Ireland, Italy, Japan, Kenya, Lebanon, Mexico, Spain, Sri Lanka, Trinadad and Tobago, and the United Kingdom

U.S. Performance

During the week of Labor Day, U.S. hotel occupancy declined 1.2 percentage points (ppts) year over year to 60.3%. The decrease was generally in line with our expectations given the normalization of travel. As compared to 2019, the occupancy difference was a scant 0.5ppts. This was one of only five weeks this year when the occupancy difference was within one percentage point of the 2019 comparable.

Revenue per available room (RevPAR) decreased 0.1% year over year (YoY) to US$91, a result of the occupancy decline as average daily rate (ADR) increased 1.8% to US$151. ADR gains have been hovering below 2% for the last four weeks, which we attribute to the changing mix and rebalancing of demand. Real (inflation-adjusted) ADR remained just under the 2019 level.

As has been observed throughout most of 2023, weekday (Monday – Wednesday) occupancy continued to show stronger performance with occupancy declining only 0.8ppts (YoY) compared to Shoulder (Sunday and Thursday) and Weekend (Friday and Saturday) days, when it declined 1.4ppts.

The Top 25 Markets posted an occupancy decline of 0.9ppts with weekdays down 0.8ppts. Weekends in the major markets fell only 0.5ppts. The shoulder period including Labor Day Monday dropped the most at 1.5ppts. The rest of the country declined 1.3ppts in occupancy with weekdays decreasing the least at -0.9ppts followed by the shoulder period (-1.3ppts) and weekends (-1.9ppts).

The most significant differences across day parts for the Top 25 Markets was observed in ADR and ultimately RevPAR. ADR increased 1.9% overall with weekdays 50% stronger at growth of 3.1%.  Weekend ADR grew 1.5% and shoulders 0.8%. The boost from ADR resulted in RevPAR increasing 1.6% on the weekdays and 0.8% on the weekend. RevPAR dropped 1.4% during the shoulder period.

For a second consecutive week, New York City (88.6%) had the nation’s highest occupancy boosted by the U.S. Open, Fashion Week, and The Armory Show (an international art show). New York ADR and RevPAR increased 11.5% and 15.1%, respectively, with the weekend posting the strongest performance (occupancy at 94.8% and RevPAR up 15.7%). Oahu was the only other market across the country to record occupancy above 80%, increasing 4.5ppts to 80.6% with ADR up 2.4% pushing a RevPAR gain of 8.5%. Denver was also a big winner as RevPAR increased, 21.4% led by a 12.5% ADR gain and a 5.6% occupancy gain. Denver’s performance drivers include the CEDIA Expo and a solid college football weekend.

Ten of the Top 25 Markets (including the three markets above) saw positive year-over-year occupancy changes, including Boston (+3.4ppts occupancy, +1.4% ADR, +6.0% RevPAR) and Washington, D.C. (+3.1ppts occupancy, 5.2% ADR, 11.1% RevPAR) with weekends producing the highest growth in both markets.

Across the rest of the country, surrounding New Jersey markets also appear to have benefited from New York events with Bergen/Passaic, NJ, Central NJ, and Newark NJ all achieving RevPAR increases of +15%. College football had an impact in many markets’ weekend performance. Most notable are three southern areas: Alabama North (Tuscaloosa), Missouri North (Columbia), and Birmingham AL posting weekend RevPAR increases more than 50%.

Higher-end hotels (Luxury, Upper Upscale, and Upscale) continued to see stronger occupancy performance than lower-priced hotels. In fact, occupancy in Upper Upscale hotels rose 0.3ppts YoY. ADR varied dramatically across the three with Upscale seeing the largest ADR increase (+2.3%) resulting in a 1.9% RevPAR increase. ADR in Upper Upscale rose 0.4% and RevPAR increased 1.0%. While occupancy was stable in Luxury, ADR fell 2.1%, netting a RevPAR decline (-2.3%).

Among the bottom three chain scales, most of the RevPAR declines were driven by falling occupancy. The lower the chain scale, the greater the decline. Upper Midscale occupancy was down 1.0ppts, ADR up 2.0% and RevPAR 0.3%. Midscale occupancy fell 1.3ppts with ADR flat and declining RevPAR (-2.1%). Economy occupancy dropped 2.3ppts with RevPAR down 3.6%.

Group demand among Luxury and Upper Upscale hotels declined 3.0% compared to the same week last year, however, the metric increased 5.9% compared to last week, which is in line with expectations for growing group demand. We expect to see group demand trending in a positive direction with slight pauses for the September Jewish holidays of Rosh Hashanah (September 15-17) and Yom Kippur (September 24-25) although both include the weekend, so the impact on groups will be less than when the holidays occur during the week.

Global Performance

Reflecting normal seasonal patterns, global occupancy (excluding the U.S.) showed a week-over-week increase to 68.4%, up 3.5ppts following a decline last week. Year over year, occupancy continued to increase (+5.4ppts), reflecting the growth pattern seen throughout 2023. ADR increased 10.4% to US$148, resulting in a 19.9% gain in RevPAR to US$101.

Occupancy for the top 10 countries, based on supply, performed like the rest of the globe with the metric rising 3.4ppts week over week to 68.7% following last week’s decline. Occupancy grew 7.3% year over year. ADR rose 5.2% YoY to US$138, and RevPAR increased 17.5% YoY to US$96.

Of the top 10 countries, Asian countries saw the largest occupancy growth, while the other top 10 countries saw modest growth to negative percentage changes. The United Kingdom maintained the top occupancy position at 81.3%, however, growth slowed to 0.8ppts YoY. Italy and France each experienced YoY occupancy declines. China, Indonesia, and Japan saw the largest YoY occupancy growth (8+ppts each) with each posting strong RevPAR gains as well (50%+ YoY).

Outside of the top 10, the highest occupancy gainers in each region:

• Kenya was up 40ppts with occupancy at 76.4%. Lebanon saw the highest occupancy of 77.6% across the Middle East and Africa.
• In the Americas, Trinadad and Tobago posted the greatest occupancy gain of 27.5%, resulting in occupancy of 64.4%. El Salvador saw the highest occupancy in the region of 78.2%.
• Sri Lanka led Asia Pacific for a third consecutive week with a gain of 21.4ppts YoY even though occupancy remained rather low (48.5%). Fiji had the continent’s highest occupancy for the second consecutive week (85.4%).
• Denmark saw the highest occupancy gain in Europe, up 21.4ppts to 78.8%. Ireland, however, had the highest occupancy (91.7%) in the region and across the world.

Final thoughts

The hotel industry appears to have paused while transitioning from summer to fall. Major events such as football games will help bolster demand. The next couple weeks will provide a much clearer view of the outlook for the fall season with group events strengthening and business travel slowly recovering.

Looking ahead

TSA screenings remain close to 2019 levels, the gap between domestic departures from the U.S. and international arrivals to the U.S. continues to close, and general optimism in the business and group travel community bodes well for the next couple weeks. Headwinds include rising gas prices, which has not dampened hotel demand in the past, but could impact some travel spending especially during the end-of-year holidays. Global occupancy will continue to follow seasonal patterns, and year-over-year gains are expected to continue at a more modest rate in Europe while Asia will likely see strong growth.