Increased Average Daily Rate Drives New Hotel Industry Forecast

A revised U.S. hotel forecast from STR and Tourism Economics adjusts occupancy numbers downward but lifted projections for average daily rate. Presenting at the 14th annual Hotel Data Conference in Nashville, the hospitality data and research firms said revenue per available room remains on track for full recovery this year on a nominal basis but, adjusting for inflation, the industry won't be truly recovered until 2025.

The updated forecast adds a little more than $2 to the ADR projection for both 2022 and 2023, bringing those numbers to $148 and $152, respectively. Occupancy was lowered by less than a percentage point for each year to 63 percent for 2022 and 64.6 percent for 2023. 

"What we are hearing in earnings calls and from our industry colleagues would indicate that group business travel should be much more aligned with prepandemic patterns in the fall and winter," said Amanda Hite, president of STR. "Our downward adjustment to occupancy was pretty much focused on a slowdown in the economy segment, which is likely due to a mix of leisure travelers wanting higher levels of accommodation and budget travelers being priced out of the market." 

She added that inflation remains the key consideration in ADR discussions, but hotels still have strong pricing power. "There are reasons to be concerned about the economy, continued challenges around labor and business transient still lagging, but the hotel industry is on solid footing," Hite said. "U.S. profitability hit a 32-month high in June, and margins have remained strong, although some reduction is likely with higher staffing levels, wages and costs." 

Worries about a recession seem to be waning. "The baseline Oxford Economics outlook anticipates slow economic growth in 2023 but not a recession, as a combination of cooling aggregate demand and easing supply constraints will help slow inflation," said Aran Ryan, director of lodging analytics at Tourism Economics. "In this context, with leisure demand supported by solid household finances, and an ongoing recovery of group and business travel, lodging performance gains are expected to continue, though at a much slower pace than experienced this year."