U.S. hotel commentary - July 2023

July 2023 Top-Line Metrics (percentage change from July 2022):
 

• Occupancy: 69.1% (-0.5%)
• Average daily rate (ADR): US$160.31 (+1.3%)
• Revenue per available room (RevPAR): US$110.80 (+0.8%)

July 2023 Bottom-Line Metrics (percentage change from July 2022):
 

• GOPPAR: US$78.17 (-1.9%)
• TRevPAR: US$216.97 (+3.5%)
• EBITDA PAR: US$53.12 (-7.5%)
• LPAR: US$72.05 (+10.3%)

Key points

• U.S. occupancy declined year over year for the fourth consecutive month as demand dipped 0.2%.
• Higher operating expenses continue to pressure profit margins.
• The Fourth of July calendar shift contributed to a change in occupancy trends, with weekday occupancy declining and weekend rising relative to 2022.
• Luxury, Upper Upscale, and Upscale chains continued to increase occupancy, while Upper Midscale, Midscale, and Economy occupancy declined.
• Group demand grew just 0.1% as summer leisure travel slowed corporate events, but August month to date suggests another successful conference season is in the works.
• Despite a favorable calendar and peak summer leisure travel, hotel demand in markets outside the Top 25 declined YoY. 
• The Top 25 Markets increased occupancy across all dayparts.
• Almost all F&B revenues are up YoY, but inflation has influenced that growth.  
• Forward bookings are up for the upcoming conference season in most markets. 
• Rooms under construction declined 2.5% YoY, the biggest decrease since November 2022.

U.S. revenue per available room (RevPAR) grew just 0.8% year over year in July, as growth in average daily rate (ADR) continued to decelerate and national occupancy declined for the fourth consecutive month.

The silver lining to the lack of demand growth – demand dipped 0.2% YoY, the third decline in the last four months – is a likewise modest increase in supply. 

U.S. hotel supply has increased less than 1% YoY for 12 consecutive months, helping to mitigate occupancy declines even as demand growth remains elusive.

July was a little bit different, though.

Weekday occupancy declined 0.4%, and weekend occupancy mounted a summer comeback, rising 1.2% from July 2022.

The weekday loss comes courtesy of a calendar shift. The Fourth of July moved from a Monday in 2022 to a Tuesday in 2023. The best way to explain that, in looking at the data, is that in 2022, business travelers stayed home the week prior to the holiday (the week ending 2 Jul 2022). Monday was a holiday, which allowed for some degree of travel the rest of that week.

Last year’s holiday was also supported by the outsized leisure demand the U.S. reported across the entire summer, meaning that some of the business loss was offset by leisure travel—a rare occurrence.

This year, with the holiday falling on a Tuesday, corporate demand was restricted for the week ending 8 July. The prior week, however, was business-as-usual, which explains the massive rise in weekday occupancy for the period ending 1 July (those weekdays technically fell in June) and the corresponding crash in weekday occupancy the following week.

Almost immediately following the fourth, weekday occupancy growth picked up again.

Weekend occupancy showed a similar trend but beat the calendar to an extent. The 3% weekend occupancy growth reported for the week ending 1 July did positively affect July figures. Beyond the calendar shift, though, July weekends were overall strong, helping push weekend occupancy growth up for the month.

The trend was most likely a one-off, however, as now that school is back in and summer has basically ended, weekend occupancy is once again falling YoY.

High hopes are on the horizon for conference season, though.

After a slow summer, group demand looking up

The strong July weekends translated into rising transient weekend occupancy, and total transient demand increased 3.5% YoY, which was the highest growth level since March.

However, anything that significantly favors transient travel does tend to have some opposing effect on group, and that’s certainly the case in July.

Weekend group occupancy remained down YoY, although that’s more a function of normalization than anything nefarious, as postponed COVID-era events bolstered weekend group occupancy in 2022.

But weekday and even shoulder group occupancy edged down YoY, as the mid-week holiday effectively shortened the July calendar.

Top 25 Markets continue to drive U.S. hotel demand

Markets outside the Top 25 continued to report demand declines despite the favorable calendar, as both business and leisure travelers favored the U.S.’s biggest markets.

The Top 25 stand out not just for overall demand growth – a respectable +1.5% compared to the Total U.S.’ -0.2% - but also for continued occupancy growth over weekdays.

While the Top 25 reported growth across all days of the week, that equality did not shine through at the market-level. Ten of the Top 25 Markets reported year-over-year occupancy declines in July.

Some of those markets, like Miami and New Orleans, have struggled with occupancy growth for much of the year. Others, like Chicago, Philadelphia, and Minneapolis, are bigger corporate and group markets, so their performance in part reflects groups’ slower month.

However, St. Louis, Washington, DC, and Las Vegas are also fairly business-driven and came in towards the top in July as did – surprisingly – Phoenix.

There’s a little bit more clarity if you bring out the 2019 index and keep the same market order as in the first chart. In general, the highest-growth markets also had the weakest index in July 2022. In other words, their outperformance in 2023 comes courtesy of underperformance in 2022.

Labor costs outgrowing revenues

The YoY growth rate in labor was lower than June, but spending on talent (on a per-available-room basis) is still outgrowing revenues.

One especially noteworthy area of revenue growth is in F&B departments, especially catering & banquets.

Overall, however, higher expenses have pulled profit margins down to below last year’s levels.

Not much movement in pipeline

Rooms in construction ticked down YoY again in July, to the tune of about -2.5%, after holding relatively flat since December 2022.

One month is not a trend – and construction activity declined 1.1% in May before flattening back out in June – so this might just be a summer/holiday/weather-related decline.

Latest Weekly Data

Heading into the final days of August, U.S. hotel occupancy (65%) was lower for a fifth consecutive week, which is in line with normal seasonal patterns. Occupancy is still expected to trend down for the next two weeks and then grow as group/conference travel climbs to its annual peak. Read more here.