After suffering the most severe declines in performance during 2020, hotels located in the largest U.S. markets will enjoy the greatest growth in occupancy and the least declines in average daily rate during 2021. In 2020, hotels located in the 25 largest lodging markets saw their revenue per available room decline 63.7 percent. CBRE forecasts a 35.3 percent gain in RevPAR in 2021 for these markets.
Several factors contributed to the decline in performance for the top 25 markets during 2020:
- A dependence on corporate demand
- A dependence on group demand
- A dependence on international visitors
- A dependence on air travel
- A greater incidence of hotel closures
The top 25 markets’ performance in 2020 compared unfavorably to the 60.4 percent average decline in RevPAR for all 65 of CBRE’s Hotel Horizons markets, as well as the national average of a 51.8 percent decline. Fortunately, 2021 is expected to bring a 31.6 percent RevPAR increase for all 65 Horizons markets. This increase, as well as the 35.3 percent RevPAR increase among the top 25 markets, surpasses the overall U.S. lodging industry RevPAR forecast growth rate of 13.6 percent.
Annual RevPAR levels for 2021 will still be approximately half of 2019 levels in the top 25 markets, tempering the significant performance bounce-back. All 65 cities in the Hotel Horizons universe will still be under their respective 2019 RevPAR levels.
By year-end 2021, smaller markets such as San Bernardino, Calif.; Dayton, Ohio; and Oklahoma City, along with drive-to coastal/tourist destinations Virginia Beach, Va.; and Savannah, Ga., will be closest to achieving their 2019 RevPAR levels. On the other end of the spectrum, large gateway markets (San Francisco, Seattle, New York), along with air-dependent Hawaii, will remain more than 60 percent below their 2019 RevPAR levels.
The Fundamentals
A reduction in the anticipated traditional competitive lodging supply will support enhanced performance for the overall U.S. lodging market in 2021 and beyond. Due to permanent closures and fewer projects starting construction, CBRE has reduced its national lodging supply forecast for 2021 to just 0.9 percent for the year, and we estimate supply growth will remain below 1 percent through 2023.
Unfortunately for hotel management in the nation’s major markets, the impact from new competition will be more intense. Based on projects that are currently under construction, the competitive lodging supply in the 65 Horizons markets will increase 3.3 percent in 2021. Jacksonville, Fla.; Austin, Texas; and Charlotte, N.C., will see the greatest percentage gains in available rooms during the year, while the Cleveland and Long Island, N.Y., markets will see a reduction in their rooms supply.
Lifts in both social distancing and air travel restrictions will greatly benefit Hawaii hotels in 2021. Accommodated roomnights are forecast to increase 78.3 percent during the year but remain 45 percent below 2019 levels. Orlando; Washington, D.C.; and Boston also are expected to benefit from gains in leisure and corporate travel. Lodging demand in these cities is forecast to increase greater than 60 percent during the year.
Columbia, S.C.; Salt Lake City; Memphis, Tenn.; and Birmingham, Ala., will lag in demand growth during 2021. These nontraditional leisure destinations benefitted from a boost in regional drive-to vacationers and therefore did not suffer as much.
In general, occupancy gains follow demand growth among the 65 Horizons markets in 2021. Unfortunately, the improved occupancy levels will not translate into improved pricing power. Several markets projected to enjoy great gains in occupancy are also forecast to suffer declines in ADR. In aggregate, the 65 major markets are forecast to suffer a 0.1 percent decline in ADR during 2021. The ADR decline for the top 25 markets is projected to be slightly greater (-0.9 percent).
Recovery
Strong projections of RevPAR growth beyond 2021 will enable the nation’s major markets to make up the severe losses incurred during 2020 and recover at a slightly faster pace than the overall U.S. lodging industry. According to CBRE’s February 2021 edition of Hotel Horizons, the 65 major markets on average will return to their 2019 nominal RevPAR levels during the fourth quarter of 2023, three quarters before the U.S. lodging recovery in the third quarter of 2024. RevPAR recovery for the top 25 markets lags the 65-market average and reaches 2019 levels in the fourth quarter of 2024.
Major-market hoteliers are starting to feel more optimistic after such a devastating year. With the pace of vaccinations exceeding 2 million a day, it is hoped that the corporate and group travelers they depend on will return to the road sooner than later. In addition, the recent $1.9 trillion federal government relief package should provide major-market hotel owners with much needed financial assistance.