Average Daily Rate, RevPAR Rise in Update to Hotel Forecast

Lodging data providers STR and Tourism Economics have updated their joint forecast for the U.S. hotel industry, upgrading this year's outlook for both average daily rate and revenue per available room. The new forecast was presented today at the 45th Annual NYU International Hospitality Industry Investment Conference in New York City.

The ADR projection for the year has risen by 1.5 percent over January's forecast, to $154.28, while RevPAR went up 1.3 percent over the previous projection, to $97.95. The numbers grew despite a 0.2 percent decline in the occupancy outlook, which is now expected to be 63.5 percent for the year.

For 2024, the outlook for occupancy dropped by 1.4 percent vs. the previous forecast, and is now expected to be 64.4 percent for the year. ADR expectations for 2024 increased by just 0.7 percent, and RevPAR was downgraded by 0.6 percent.

Expectations for gross operating profit per available room, which had been expected to grow modestly this year and more significantly in 2024, have been scaled back a bit, with the 2023 outlook dipping by 2.7 percent and the following year dropping by 4.0 percent.

"Despite the upgrade, economic uncertainty underlines our forecast for the remainder of this year and into 2024," said STR president Amanda Hite. "We have always forecasted with a mild recession in mind, but we're now looking at a later timeline and the added concerns around the banking system."

Still, hotel demand improved 4.3 percent over the first four months of 2023, with most of the gain coming from the upper-upscale and upscale chains. Business travel and group business tend to drive performance in those chain scales, and STR expects those categories to continue to lead industry demand growth for the remainder of this year.

"The industry has plenty of reasons to remain optimistic about top-line performance," Hite continued. "At the same time, growing operating expenses, especially labor, continue to pressure the bottom line. Profit margins, while strong, are projected to be lower this year than last."

Group and Business Travel Outlook Is Positive

The forecasters expect that business travel, group business and international travel — all of which have been slower to return than leisure — will continue to improve in the second half of this year. However, those gains will be modest due to economic pressures such as tighter lending restrictions, inflation and what's expected to be "a relatively mild recession" later this year, according to Aran Ryan, director of industry studies at Tourism Economics.

For those reasons, most of the overall hotel performance growth — while stronger than previously expected — is expected to occur in the first half of 2023, with the year-over-year growth percentage decreasing with each passing quarter.