During 2020, hotels located in the nation’s major markets suffered more than those located in tertiary cities, rural locations or remote areas. The average revenue per available room for the 65 major markets tracked in CBRE’s Hotel Horizons reports declined 58.8 percent. On the other hand, hotels located outside the nation’s 65 markets saw their RevPAR drop 35.9 percent.
Properties in the major markets suffered because of their reliance on corporate, group and international travelers, all segments that essentially shut down in 2020. Conversely, hotels operating in the smaller markets benefited from the perception of a safer, healthier destination with less of a probability of becoming infected with COVID-19.
According to the latest edition of CBRE’s Hotel Horizons, all 65 major U.S. lodging markets are expected to achieve RevPAR gains in 2021. Because they suffered more in 2020, the larger markets will see greater percentage gains in RevPAR (46.8 percent) during the year compared to the smaller markets (36.3 percent).
The magnitude of the difference in RevPAR growth becomes even more exaggerated in 2022. CBRE is forecasting a RevPAR increase of 34.3 percent for the 65 Horizons markets during the year, while the markets outside this 65-city universe will see their RevPAR levels drop 6.2 percent. This decline is mostly attributable to the loss of the price premiums currently obtained by hotels in remote and rural locations.
Despite the strong RevPAR growth rate, by year-end 2022 the $86.65 RevPAR achieved by the major market properties will still lag their 2019 RevPAR levels by 18.8 percent. The gap will be even greater in the nation’s 25 largest hotel markets, where the RevPAR deficit is projected to be 21.4 percent. For comparative purposes, the entire U.S. lodging industry is forecast to achieve a 2022 RevPAR 18.3 percent below 2019 levels.
Supply and Demand
Markets popular before COVID will once again attract the attention of developers as the recovery picks up in 2022. During the year, the greatest increases in new hotel rooms will occur in New York City; Fort Worth and Austin in Texas; San Jose, Calif.; and Boston. All five of these markets will see their room inventory grow more than 4 percent. Technology is a big demand generator in Austin and San Jose, while New York and Boston are two urban markets with long-term durability. Meanwhile, smaller markets such as Milwaukee; Albany, N.Y.; Cleveland; Virginia Beach, Va.; and Birmingham, Ala., will see virtually no new competition in 2022.
Changes in demand during 2022 are basically inverse to the declines suffered in 2020. Corporate, convention and international travelers are expected to start to return to San Francisco, San Jose, New York and Washington, D.C., during the year. All four markets will enjoy demand growth greater than 35 percent in 2022.
Virginia Beach; Sacramento and San Bernardino, Calif.; Richmond, Va.; and Tampa, Fla., will lag in demand growth in 2022. These markets (except Sacramento) are within 10 percent of their pre-COVID occupancy levels, indicating they are nearing their natural capacity levels.
Occupancy and ADR
Not surprisingly, changes in market occupancy mirror the changes in demand. The five markets forecast to achieve the greatest gains in demand also are the five projected to enjoy the greatest percentage increases in occupancy during 2022. The markets projected to experience the least gains in demand will still see their occupancy levels increase, but significantly less than the 8 percent national average.
In 2022, ADR in all 65 Horizons markets is forecast to increase. This is the first time since 2014 that none of the 65 Horizons markets will suffer a decline in ADR. As expected, pricing power will be aligned with changes in demand and occupancy. The markets forecast to experience the greatest gains in demand and occupancy during 2022 will also see their ADRs rise more than 20 percent. Conversely, ADR growth will be less than 5 percent in those markets where demand and occupancy gains are limited.
Robert Mandelbaum is the director of research information services for CBRE Hotels Research.