U.S. hotel commentary - March 2024

Analysis by Jean-Claude Pedjeu and Chris Klauda

Top-Line Metrics (March 2024 vs. March 2023):

• Occupancy: 63.7% (-2.5%)
• Average daily rate (ADR): US$159.79 (+0.4%)
• Revenue per available room (RevPAR): US$101.81 (-2.2%)

Bottom-Line Metrics (March 2024 vs. March 2023):

• TrevPAR: $233.90 (+2.5%)
• GOPPAR: $89.68 (-1.0%)
• EBIDTA PAR: $65.08 (-2.9%)
• LPAR: $76.47 (+6.8%)

Key Points

• RevPAR declined for the first time since February 2021.
• Top 25 Markets, excluding Las Vegas, outperformed the rest of the U.S.
• ADR up for Upper Upscale and Upscale chain scales, down for all others.
• Forward booking levels are up through May.
• Rooms under construction are up marginally.

Overview

Revenue per available room (RevPAR) fell 2.2% year over year (YoY) in March, marking the first such decline since February 2021. The decrease was due in part to an extra Sunday—the lowest performing day of the week—on the calendar as well as the Easter calendar shift from April in 2023 to March this year. Even with those factors, there were still declines earlier in the month when calendar composition was not an issue, which is reason for caution moving forward. Additionally, Las Vegas continued to be an impactful factor on U.S. performance with 3.1% of the national room supply. Removing Las Vegas from the equation, March RevPAR declined 1.2% YoY.

ADR growth was negligible (+0.4%) and well below the rate of inflation (+3.5% YoY). The Easter calendar shift and an extra Sunday deflated ADR on shoulder days (Thursday and Sunday) and weekends (Friday and Saturday).

Chain Scales

Upper Upscale chains excelled in all KPIs in Q1 2024 with ADR being the primary driver of performance, up 1.9% compared to an occupancy increase of 0.9%. Luxury chains continued their run of strong demand gains with Q1 up 9.0% YoY, while ADR struggled against its post-pandemic surge. For the quarter, ADR dropped to $441 from $452 a year ago.

Room demand in Midscale and Economy hotels saw another quarter of deterioration. Economy demand has fallen for the past four quarter, whereas Midscale has been down for three. Upper Midscale saw demand fall in Q4 2023 and again in Q1 2024. Demand growth also slowed considerably in Upscale hotels but remained positive. We believe that the slowing in room demand is because of an economic squeeze on lower-to-middle income travelers dealing with rising prices, debt load, and debt costs (interest rates). This cohort is a significant part of the Upper Midscale, Midscale, Economy customer mix. They will continue to travel but less so than they have over the past two years.

Segmentation

A notable consequence of the Easter calendar shift was seen in Group demand, which fell sharply, from +6.8% in February to -4.9% in March. March 2024 Group demand was better than in January and February but below what was seen in 2019 and 2023. Transient demand rose (+4.4%) and was better than the growth seen in February (+1.4%). Transient also beat both March 2019 and 2023 increases.

The Group ADR recovery we observed throughout 2023 and into 2024 flattened in March, underperforming January’s 4.7% YoY growth and February’s impressive 7.6% YoY return. In comparison, transient ADR comparisons were negative.  

Top 25 Markets

For the first time in more than a year, the Top 25 Markets trailed the rest of the country in ADR growth and saw a decline in occupancy. The decreases were less when excluding Las Vegas.

As noted in our recent reports, Las Vegas has an impact on national performance, especially for the Top 25 Market aggregate. The market represents 8.5% of the total room supply in the Top 25 Markets and posted RevPAR declines in three of the four full weeks in March ranging from
-19.6% to -41.5% due to convention calendar shifts. For the month, Las Vegas was down 7% YoY in occupancy, 13.4% in ADR, and 19.5% in RevPAR.

With Las Vegas, the Top 25 Markets recorded a RevPAR decline of 2.2%. Excluding Las Vegas, RevPAR was flat among remaining markets. The same story goes with ADR. The Top 25 Markets registered a 0.9% decrease in ADR, but without Las Vegas, it was up 0.8%.

Weekday occupancy was up a bit (+0.7%) in the Top 25 Markets, reflecting continued recovery in business travel, but shoulder days (Sunday, Thursday) and weekends (Friday and Saturday) showed declines of -2.3% and -3.4%, respectively.

New York City, Boston, Seattle, and Minneapolis led the Top 25 in occupancy and RevPAR, while Las Vegas, Nashville, and Denver lagged.

Profitability

Total revenue per available room (TRevPAR) reached its highest level since 2018, but so did labor (LPAR). With LPAR growing three times as much as total revenue, GOPPAR slipped. Regardless, profit margins are starting to ramp up and came in only 3pp from the previous peak of 41% in October 2023. Continued growth in operating expenses, especially labor, has had the biggest impact on those margins. Top 25 Market labor margins are over 35%, up from 33% a year ago.

Pipeline

The number of rooms under construction increased year over year, reversing a course of decreases since June 2023. Pipeline leaders—Upscale and Upper Midscale—continue to dominate construction activity, totaling a little more than 50% of all rooms in this phase. However, the pace of 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 9.8% and planning increasing 39.5%, down from +48.2% in February. Overall, more than 744,000 rooms (6,326 hotels) sit in the pipeline with total rooms up 18.8% from last year. 

Q2 expectations

Occupancy on the books for Q2 is generally parallel to Q2 last year as shown in Forward STAR data. The first two weeks of May show a year-over-year boost while the following weeks through mid-July generally match last year.

Forecast

The slower Q1 RevPAR growth was 180 basis points (bpps) below our expectations as occupancy decreased at a sharper rate than we anticipated (-160bpps). All chain scales, except Luxury, saw lower occupancy performance than we forecasted. Luxury beat our forecast by 270bbps. On the plus side, our ADR forecast for the quarter was nearly dead-on (-20bbps).

Based on Q1 actuals and our January forecast for the remaining three quarters, U.S. RevPAR is now expected to increase 3.7%. A complete revision of our forecast will be released at the NYU International Hospitality Industry Investment Conference in early-June.

Latest Weekly Data

After a few weeks of inconsistency, U.S. hotel performance stabilized returning to normal patterns including strong group demand and solid Top 25 Market performance. Outside of the U.S., global leisure travel shows signs of growth. Read more here.