RevPAR recovery lags in U.S. major markets

CBRE Hotels Research’s June 2020 national edition of Hotel Horizons forecasts U.S. revenue per available room to reach and surpass its 2019 level in 2023. However, for hotels that operate in the 60 major markets covered by CBRE’s Hotel Horizons forecast reports, in aggregate RevPAR recovery will not occur until 2024.

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The one-year delay in major market RevPAR recovery is attributable to several factors:

  • greater presence of higher-priced properties;
  • greater dependence on group demand;
  • density of development and relative lack of open spaces for social distancing;
  • greater dependence on international travel;
  • greater dependence on airlift; and
  • higher rates of COVID-19 infections relative to rural areas.

Demand Downturn

The influence of the above factors becomes evident when analyzing the changes in demand forecast in 2020 for the major markets. All 60 Horizons markets will suffer declines in demand this year. On average, the decline in demand is estimated to be 39.9 percent, 290 basis points below the projected 37 percent decline for the overall U.S. lodging industry.

New York hotels will suffer the greatest decline in demand during 2020. The number of hotel rooms rented in New York is forecast to be half the number accommodated in 2019. Oahu, Hawaii; Seattle; Washington, D.C.; and Dallas are also projected to experience demand declines greater than 40 percent.

On the other hand, hotels in Tampa, Fla.; Dayton, Ohio; Fort Lauderdale, Fla.; Columbia, Md.; and Houston will experience the least declines in demand in 2020. Hotels in Tampa and Fort Lauderdale have benefited from their beachfront locations and already showed weekend surges in demand during March and April.

Supply and Occupancy

Given the poor outlook for larger, upper-priced properties in the nation’s major markets, a disproportionate number of them have temporarily ceased operations. With the reductions in supply, the reported occupancy levels for the nation’s largest markets have not dropped in proportion with the declines in demand.

At CBRE, we believe this method of reporting can lead to a false reading of the health of the market. Accordingly, our firm has followed the guidance provided by the Uniform System of Accounts for the Lodging Industry when handling lodging supply. The full inventory of rooms at properties that close on a discretionary basis for less than six months remains in the market supply base for our forecasts. We only remove hotels that are permanently closed from supply. We believe this provides greater insights into the year-to-year changes in macro-market performance.

Nearly half of the 60 Hotel Horizons markets are forecast to suffer occupancy declines in excess of 40 percent in 2020. Despite a few permanent property closures, New York hotels will suffer the greatest decline in occupancy level, followed by Seattle and Oahu. Dayton and Tampa hoteliers will experience occupancy declines of 32.1 percent, the least falloff in performance.

ADR and RevPAR

Typically declines in demand and occupancy lead to a softening of pricing power. However, rate discounting only partially explains the weak average daily rate forecasts for the Horizons markets in 2020. The projected low occupancy levels for the upper-priced segments will result in a disproportionate percentage of major market demand accommodated at the lower-priced segments in 2020.

The significant decrease in occupancy, combined with a forecast 28 percent drop in ADR for the year, results in a projected annual decline in RevPAR of 57.6 percent for the 60 Horizons markets during 2020. Once again, the New York market leads the nation in the decline of this significant hotel metric, followed by Seattle, Boston and Washington, D.C. The Florida markets of West Palm Beach, Tampa and Fort Lauderdale will see their RevPAR values decline the least in 2020.

Down, Then Up

After experiencing the 57.6 percent decline in RevPAR during 2020, the 60 Hotel Horizons markets will benefit from a 54 percent boost to RevPAR in 2021. This strong 2021 revenue growth will still put these markets 34.8 percent below the aggregate RevPAR level of $105 achieved in 2019. The magnitude of the decline in major market RevPAR in 2020 will be difficult to overcome and delay RevPAR recovery until 2024, one year beyond the rest of the nation.

Robert Mandelbaum is director of Research Information Services for CBRE Hotels Research. To learn more about CBRE’s Hotel Horizons forecasts for 60 markets in the United States, please visit pip.cbrehotels.com, or call (855) 223-1200.