CBRE is again raising its forecast for hotel performance this year as stronger-than-expected demand and more modest supply growth drive occupancy gains.
CBRE has revised its forecast for 2023 revenue per available room to $97.89, up 6 percent year over year and an increase of $0.43 from its previous forecast. The positive revision is predicated on a 65-basis-point increase in expected occupancy compared with the previous forecast issued in February. Average daily rate is now expected to increase 3.7 percent in 2023, down from the previous forecast of 4.2 percent, owing to slightly lower inflation expectations and a bigger mix of group travel and shoulder-period (between peak season and offseason) demand, which are often at a lower rate.
CBRE’s baseline-scenario forecast anticipates 0.8 percent average GDP growth and average inflation of 4.6 percent in 2023. Given the strong correlation between GDP and RevPAR growth, changes in the economic outlook will directly impact lodging industry performance.
“We are already starting to see signs that the easing of travel restrictions in Japan and China, combined with continued improvements in group and independent business demand, are bolstering demand heading into the heavy summer travel season,” Rachael Rothman, CBRE’s head of hotel research & data analytics, said in a statement.
Economic Headwinds
The U.S. economy grew at an annualized rate of 1.1 percent in Q1 2023, the third consecutive quarter of positive GDP growth. The uptick in economic growth led to Q1 record U.S. RevPAR of $88.33, up 15.5 percent year over year from Q1 2022. RevPAR growth was driven by a 9.6 percent increase in ADR and a 3.1 percent increase in occupancy year-over-year. Strength in the quarter was attributable to continued improvement in group business, inbound international travel, and an uptick in traditional transient business demand.
Given the impact that COVID restrictions had on hotel fundamentals in Q1 2022 and an anticipated deceleration in GDP growth in the second half of 2023, CBRE expects Q1 2023 to be the high point of the year for RevPAR growth. The growth rate is expected to decelerate to the 4 percent to 5 percent range over the next few months before further decelerating to the 2 percent to 3 percent range in Q4 2023.
“Despite the moderating pace of GDP growth, several travel-specific tailwinds coupled with employment growth and wage increases should result in another record year for RevPAR in 2023,” said Michael Nhu, senior economist and CBRE’s head of global hotels forecasting. “The combination of inflationary pressures and higher interest rates are leading to slower hotel supply growth and further strengthening the pricing power of existing hotels.”
CBRE forecasts that hotel supply will increase at a 1 percent compound annual growth rate over the next five years, below the industry’s 1.6 percent long-term historical average.