U.S. hotel commentary - May 2024

Analysis by Jean-Claude Pedjeu and Chris Klauda

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

• Occupancy: 65.7% (+1.5%)
• Average daily rate (ADR): US$160.40 (+2.4%)
• Revenue per available room (RevPAR): US$105.46 (+4.0%)
   

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

• TRevPAR: $224.58 (+1.2%)
• GOPPAR: $83.80 (+0.3%)
• EBITDA PAR: $62.63 (+2.4%)
• LPAR: $75.00 (+3.3%)

Key Points

• RevPAR growth was the highest since March 2023.
• Bifurcated chain scale performance: Upper tier grew, lower tier fell.
• Weekday occupancy and ADR dominated.
• Total revenue growth was left to F&B and other operated departments.
• Lowest labor cost growth in the last 12 months, leading to a very slight increase in gross operating profit per available room (GOPPAR).

Overview

U.S. hotel RevPAR rose 4% year over year (YoY) in May, following a 1.9% increase in April, marking the second consecutive month of growth after a slow Q1. Occupancy also grew for the second month in a row (+1.0 percentage points [ppts]), which was the largest gain since March 2023. 

The May results were encouraging and may be another sign of normalization as June month-to-date (MTD) data has appeared to build on May’s performance. June’s performance, however, will likely come in lower because it included five Sundays versus the extra Friday that propelled May. June also included an extra Saturday, which offsets the loss of a Friday, and the midweek occurrence of the Juneteenth holiday affected weekday figures, which has driven performance this year.

U.S. ADR improved (+2.4%) – the highest increase of the past three months, but still below the inflation rate of 3.3%.

Supply growth continued at a steady +0.5% during the month – a trend that started at the beginning of the year and is expected to rise modestly for the remainder of the year. Furthermore, activity in the construction phase of the pipeline rose 4.0%, the third consecutive YoY increase, outpacing the 2.2% growth seen in April.

As they have in 16 of the past 17 months, the Top 25 Markets outperformed the rest of the country: occupancy (+2.8%), ADR (+2.1%) and RevPAR (+5.0%). Growth was lower in all other markets: occupancy (+0.7%), ADR (+2.4%) and RevPAR (+3.1%).

For May year to date, RevPAR grew 1.3% thanks to ADR growth (+1.8%), which was partially offset by falling occupancy (-0.5%). Recall, April’s YTD RevPAR increase (+0.5%) was the lowest of any non-recessionary period.

Occupancy decreased 0.3ppts to 61.2% and was further below the level seen in 2019 (64.4%). With YTD ADR growth below the rate of rate inflation, real ADR (inflation-adjusted) fell 1.4% YoY and was 2.5% below the 2019 comparable. YTD real RevPAR also fell 1.9% YoY and was 6.8% lower than 2019.

May YTD RevPAR in the Top 25 Markets increased 2.5% compared to a flat output (+0.3%) in other markets. Excluding Las Vegas, U.S. YTD RevPAR was up 0.9% on increasing ADR (+1.5%) and falling occupancy (-0.6%).

Chain Scales

Among the chain scales, RevPAR increased by at least 3% from Luxury to Upper Midscale. The highest RevPAR gain was in the Upper Upscale chains (+5.4%). Luxury chains also saw solid RevPAR growth (+4.9%), driven by occupancy (+5.1%) with flat ADR (-0.2%).

The Economy chain scale saw an improvement in its RevPAR decrease, down just 0.9% in May, which was much better than the previous four months. While improved, Economy was the only chain scale with a YoY decline in occupancy (-0.1%), but it was the lowest decline of the past 12 months.

For May YTD, Upper Upscale and Upscale were the only chains to register meaningful RevPAR growth (+3.4% and +1.7%, respectively). Luxury demand has been hot this year to the tune of a 10.5% increase, contrary to a decline (-3.3%) in ADR over the same period.

Hotel room demand contrasts with other travel data and indicators, which point to a stronger year. The bifurcation observed (top three chains doing well while other chains struggle) in room demand could be a byproduct of a general economic squeeze on lower-to-middle-income travelers dealing with rising prices, increased debt load, debt costs (interest rates), and increased debt payment delinquencies. This cohort is a significant part of the Upper Midscale, Midscale, and Economy customer mix. They will continue to travel but less so than they have over the past two years.

Segmentation

Group demand for Luxury and Upper Upscale hotels showed a softening in May (+4.8%) compared to April (+12.5%), the latter driven by the Easter calendar shift. Transient demand showed a reverse pattern, going from a decline of 0.5% in April to an increase of 4% in May. Group ADR (+5%) continued to outperform transient (+0.5%) as it has in every month of the past year. Group ADR has increased by more than 4% in 10 of the past 12 months.

For May YTD, group and transient demand were up 5.4% and 2.3%, respectively. However, group demand remains below pre-pandemic levels at -4.5% compared to May YTD 2019. On the other hand, transient demand is 2.4% higher than what it was May YTD 2019. ADR for 2024 so far is up 4.2% for group and down 0.5% for transient. 

Top 25 Markets

Demand growth for the Top 25 Markets (+3.4%) regained a lead over all other markets (+1.2%) after dropping in April. For the third consecutive month, and the third time in the last 12 months, the Top 25 Markets trailed the remaining markets in room rate growth, with increases of 2.1% and 2.4%, respectively. However, due to strong demand growth, the Top 25 Markets outperformed the remainder of the country in RevPAR growth (+5.0% vs. +3.1%).

Occupancy in the Top 25 Markets showed increases in all three day-part categories: +2.9% on shoulder days (Sunday & Thursday), +4.2% on weekdays (Monday-Wednesday), and +0.5% on weekends (Friday & Saturday).

The strong performance by the Top 25 Markets was observable across many markets, particularly in six (Chicago, Houston, Minneapolis, New York, San Francisco, and Seattle) where RevPAR increased 10%.

Eight of the Top 25 Markets saw occupancy growth above 4%, led by Houston, Seattle, and New Orleans, while Anaheim (Orange County), Detroit, and Denver lagged. Looking at room rates, San Francisco, New York City, and Seattle led the pack while Orange County was again a laggard. As a result, RevPAR was much stronger in most of these top markets.

Pipeline

For a third consecutive month, the number of rooms under construction increased year over year. Pipeline leaders, Upscale and Upper Midscale, continued their dominance and accounted for about 50% of all rooms in the final phase of the pipeline. 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 (+1.6% and -5.0%, respectively), while Midscale and Economy rooms in construction increased.

Rooms in the planning phases continue to grow with final planning up 10.5% and planning increasing 41.7% (up from +34.2% in April). More than 759,984 rooms (6,390 hotels) sit in the pipeline, up 20.6% from last year. 

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