After lagging during the initial stages of the recovery from the COVID industry recession, the nation’s major lodging markets are forecast to achieve greater gains in revenue per available room during 2023 than elsewhere in the U.S. According to the November 2022 edition of Hotel Horizons, hotels in the 65 markets covered by CBRE are projected to enjoy an 8.6 percent increase in RevPAR in 2023. This compares favorably to the 5.8 percent RevPAR growth rate forecast for the entirety of the U.S. lodging market. The outlook for the 25 largest markets is even more favorable. RevPAR for these markets is forecast to increase 9.3 percent during 2023.
Driving the increase in 2023 major market RevPAR is an equal mix of occupancy and average daily rate growth. Both metrics are projected to rise 4.2 percent during the year. The composition of RevPAR growth for the nation differs. The 5.8 percent rise in overall U.S. RevPAR will be the result of a 1.6 percent increase in occupancy, combined with a 4.2 percent gain in ADR.
Chain Tiers
When analyzing the performance of major U.S. markets, CBRE segregates the lodging supply into three chain-tier categories:
- Lower-tier: economy and midscale chain-class properties
- Midtier: upper-midscale and upscale chain-class properties
- Upper-tier: upper-upscale and luxury chain-class properties
Upper-priced hotels will lead major market RevPAR growth in 2023. For 2023, major city RevPAR in upper-priced hotels is forecast to increase 10.2 percent, compared with RevPAR projections of 4.4 percent for lower-priced hotels and 7.6 percent for midpriced properties.
The strong growth in upper-priced major city RevPAR is forecast despite the fact that development interest is greatest in this segment. The inventory of upper-priced hotels is expected to increase 2.1 percent in 2023, greater than the supply growth rates for lower-priced (0.1 percent) and midpriced (2 percent) hotels.
Benefiting upper-priced properties is the strong 9.2 percent forecast for demand growth forecast for 2023. Demand for lower-priced properties is expected to rise 1.6 percent while midpriced demand should increase by 5.8 percent. Upper-priced hotels in the major city markets are most dependent on group and commercial demand, both of which have lagged leisure demand recovery since 2020.
Front Loaded
It is worth noting that the 8.6 percent major market RevPAR growth forecast for 2023 is front-end loaded, particularly in the first quarter of the year given the easy comparisons created by the outbreak of the Omicron variant in early 2022. Our major market RevPAR forecast for the first quarter of 2023 calls for a 17.5 percent gain, followed by 5.7 percent to 6.7 percent growth over the balance of the year. Occupancy drives the RevPAR increase during the first half of the year, while ADR is the stronger growth component during the last two quarters.
Market Recovery
By year-end 2023, 53 of the 65 Horizons markets are expected to have reached, or surpassed, their 2019 RevPAR levels. That leaves 12 more to recover in 2024 or beyond. The majority of markets lagging in recovery are in northern California, the Upper Midwest and along the Northeast corridor from Washington, D.C., through New York.
At the other end of the spectrum the leisure-centric destinations of Savannah, Ga.; Miami; St. Petersburg, Fla.; and the Coachella Valley in California, which are forecast to exceed their 2019 RevPAR levels by more than 20 percent in 2023.
Robert Mandelbaum is director of research information services for CBRE Hotels. To learn more about the Hotel Horizons forecast reports for 65 markets in the United States, please visit pip.cbrehotels.com, or call (866) 454-9978.