U.S. hotel commentary - February 2024

Note: All financial figures presented in US$.

Top-Line Metrics (February 2024, percentage change from February 2023):
 

• Occupancy: 58.9% (-1.8%)
• Average daily rate (ADR): US$158.23 (+3.9%)
• Revenue per available room (RevPAR): US$93.19 (+2.0%)

Key points
 

• February produced modest RevPAR growth, reflecting the continued return to low single-digit gains. 
• Without Las Vegas and the Super Bowl, U.S. RevPAR would have been fallen. 
• The Top 25 Markets continued to outperform all others with Las Vegas once again lifting the aggregate.
• Group demand and ADR maintained an edge over the Transient counterparts.
• Upper Upscale and Upscale chains led industry performance, boosted by group demand and continued weekday recovery. 
• Planning activity in the pipeline is growing consistently, which will result in more robust supply growth in 2025 and beyond.

Overview

RevPAR improved 2.0% year over year (YoY) in February, reflecting the continued return to pre-COVID patterns of low single-digit gains. Remove Las Vegas from the equation, however, and February RevPAR was down 1.4% YoY. The overall RevPAR increase was due to a solid YoY increase (+3.9%) in ADR, which was partially offset by an occupancy decline of 1.1 percentage points to 58.9%.

Demand across the U.S. declined for the 11th consecutive month. Supply has continued to grow modestly and is expected to remain low for the rest of the year. Furthermore, projects in the planning phase of the pipeline are rising rapidly, which will put more pressure on occupancy in the coming years. As a medium-term offset, inbound international travel is expected to increase significantly in 2024 and 2025, surpassing pre-pandemic levels in 2025 and alleviating some of the pressure.

The ADR increase came in above the rate of inflation for the first time since November 2023. Growth was spread across all elements of the week (weekdays, weekend, and shoulder days), each producing gains of at least 3.6% YoY.

Chain Scales

The three highest chain scales (Luxury, Upper Upscale and Upscale) posted RevPAR increases, with Upper Upscale seeing the largest gain of 4.7%. The other two scales were below +1%.

Different from the national trend, Luxury chain scale RevPAR was lifted by occupancy while ADR decreased. After seeing record-breaking ADR in 2022, Luxury hotels have reported declines in every month since the start of 2023, with February ADR dropping from $476.27 in 2022 to $457.25 in 2023 to $449.51 in 2024.

For the lower three chains scales (Upper Midscale, Midscale and Economy), steady demand declines continued into February, with Economy chains posting the greatest decline. Over the past five years, there appears to be a structural shift in the Economy chain scale with a significant number of properties closing and/or moving out of the segment.

Segmentation

For hotels in Luxury and Upper Upscale classes, improving group demand has been a major story continuing into 2024 with YoY increases of 8.7% in January and 6.7% in February. Further, every week in January showed an improvement over the same week a year earlier. Transient demand has shown minimal increases since the start of 2024.

Group ADR has continued to recover throughout 2023 and into 2024, including a 4.5% YoY increase in January and an impressive 7.5% gain in February. In comparison, transient ADR stayed well below the annual rate of inflation at +1.3% and +1.6% in January and February, respectively.

Markets

Demand growth in the Top 25 Markets continued after stalling in the last three months of 2023. Weekday demand, especially, bolstered the Top 25 Markets in February, contributing to a modest 2.0% occupancy gain. Occupancy for shoulder days (Sunday, Thursday) was basically flat (+0.2%), while weekends sustained a decline of 1.8%. In the remaining markets, occupancy was down 2.9% YoY.

The Top 25 continued to significantly outperform other markets, and February’s ADR growth in the major markets was the strongest since the end of first quarter 2023.

A 6.8% increase in Top 25 ADR was boosted by exceptionally strong performance in Las Vegas, with the Super Bowl contributing to ADR growth of 61.9% for the month. Las Vegas represents almost 10.5% of rooms demand and 8.5% of rooms supply in the Top 25 Markets, so a big month in Vegas has an impact on the aggregate. As outlined further in this analysis article after the Super Bowl, Las Vegas broke the continental U.S. record for Saturday and Sunday ADR.

Phoenix was a reverse story from Las Vegas with ADR declining 16.2% YoY in comparison with its Super Bowl host period in 2023.

The outstanding ADR result in Las Vegas overshadowed solid performance in Boston, Oahu Island and Houston, which each reported ADR gains of at least 5% in February.

Overall, Top 25 Markets ADR grew 6.8% in February, and RevPAR was up 6.8% compared to a 1.9% decrease for the remaining U.S. markets.

Pipeline

The number of rooms under construction decreased year over year for the second month in a row. Looking back on the last five-plus years, December construction activity has always been low due to some projects in construction finishing up, while new projects postpone breaking ground until after the holidays. Over the past 12 months, the number of rooms under construction has continued to trail the comparables from the previous year.

Pipeline leaders—Upscale and Upper Midscale—continue to dominate the construction phase; however, the pace for pipeline activity in these segments has declined compared to 2022. Rooms under construction in the two segments have also slowed compared to last year, while Midscale and Economy rooms under construction increased.

Projects in planning continue to grow with rooms in final planning up 9.5% and planning increasing 48.2%. Overall, more than 745,000 rooms (6,338 hotels) sit in the pipeline with rooms up 19.3% from last year. With the Federal Reserve announcement of three quarter-percentage point cuts by the end of 2024 (first reductions since 2020), this may affect the pace at which projects break ground. 

Latest Weekly Data

U.S. hotel 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 ADR, which was down 2.1%. Read more here.