Despite lagging in recovery, U.S. hotel developers are still attracted to the nation’s major markets. According to CBRE’s May 2022 Hotel Horizons forecasts, revenue per available room for the average hotel in the U.S. in 2022 is projected to be $86.12. This is just slightly less (99.7 percent) than the $86.39 RevPAR achieved before COVID in 2019. However, among the 65 major markets in the Horizons universe, RevPAR will lag 2019 levels by 8.8 percent. Further, hotels in the 25 largest U.S. hotel markets will suffer an even greater RevPAR deficit of 10.5 percent.
While major market recovery trails behind the nation’s tertiary, rural and remote hotels, the pace of supply growth in the major markets is well ahead of the national average. CBRE is forecasting a national lodging inventory net increase of 1.1 percent in 2022. This is below the long-run average of 1.4 percent. Hotel development has been suppressed due to high prices for building materials and furnishings, as well as the shortage of construction labor.
While overall supply growth is muted, the lodging supply in the nation’s 65 major markets is expected to record an annual supply gain of 1.7 percent in 2022. This is above its 1.5 percent long-run average. The 1.7 percent supply growth rate is even more remarkable because six of the 65 markets will see a decline in their available room count during 2022. COVID-related closings will serve to reduce the supply of hotels in Cleveland; Salt Lake City; Washington, D.C.; Newark, N.J.; Virginia Beach, Va.; and Hartford, Conn.
Among the 65 Horizons markets, the greatest percentage increases in supply are forecast to occur in some relatively small markets such as Austin, Texas; Nashville; San Bernardino, Calif.; and San Jose, Calif. Austin and Nashville both benefit from being state capitals, educational hubs and leisure destinations. These have proven to be reliable sources of demand in recent years. New York is the only major urban/gateway city among the top five hotel supply growth markets.
Analyzing 2022 supply growth by chain scale also reveals some counterintuitive results. All of the net new supply is entering the major markets at the upper-priced and midpriced tiers, while the lower-priced segment will experience a net decline in supply during the year. This phenomenon can be partially explained by hotels that have been recently renovated and reclassified into a higher chain scale.
Demand
While the major urban/gateway markets may not be seeing the greatest percentage increases in supply, in 2022 they are forecast to benefit from the strongest gains in demand. The markets forecast to experience the greatest increases in occupied roomnights are San Francisco, New York, Hawaii, Boston and Washington, D.C. Of course, these markets have plenty of room for growth since they suffered some of the greatest declines in demand during 2020. Except for Hawaii, the 2022 occupancy level in these markets will still be 10 to 20 occupancy points below 2019 occupancy levels.
Lagging in demand growth during 2022 are smaller, isolated markets that did not suffer as much in 2020. On average, hotels in Virginia Beach; Columbia, S.C.; St. Petersburg, Fla.; and Salt Lake City are within 5 percent of their 2019 demand levels, thus limiting their realistic potential for growth.
ADR
Average daily room rates are projected to continue to exhibit strong growth in 2022, especially in the nation’s major markets. While ADR for the overall U.S. lodging market is forecast to increase 14.2 percent, properties in the 65 Horizons markets are expected to enjoy ADR growth of 19.2 percent. By year-end 2022, 50 of the 65 markets tracked by CBRE will achieve ADR levels greater than 2019.
Basic economics help explain the aggressive pricing. The markets forecast to achieve the greatest growth in ADR are also those projected to experience the strongest growth in demand.
The notable exception is Hawaii. Despite a demand gain of 35.2 percent and an occupancy level of 74.6 percent forecast for 2022, the ADR for Hawaiian hotels is expected to increase just 4.5 percent during the year. This is the lowest ADR growth rate among all 65 Horizons markets.
Robert Mandelbaum is director of research information services for CBRE Hotels’ Americas Research. He is located in the firm’s Atlanta office. To learn more about the Hotel Horizons forecast reports for 60 markets in the United States, please visit pip.cbrehotels.com, or call (855) 223-1200.