U.S. Lodging Market Performance Improves Modestly

The news has been relatively good, given the context, over the past couple of quarters for the lodging industry as “declining economic activity has had minimal impact on lodging fundamentals, which have continued to recover at a robust pace,” according to the September 2022 client letter from Lodging Analytics Research & Consulting (LARC).

“U.S. RevPAR [revenue per available room] was up 39% in 2Q-2022 on a year-over-year basis, driven by a 27% increase in ADR and a 9% increase in occupancy,” the firm wrote. “Additionally, 2Q-2022 RevPAR was 11% above 2019 levels driven by ADRs that were 14% above them.”

In that quarter, U.S. GDP was down by 0.9%, the second quarter of negative growth (which, remember, is not the definition of a recession). That didn’t have a “meaningful impact” on industry recovery so far, but continued inflation means ongoing interest rate hikes by the Federal Reserve. That’s slowed economic growth so far — as it’s supposed to do in an effort to cool things to tame inflation while hopefully avoiding a recession. And leisure travel has remained strong, LARC noted.

But the country may be seeing “the peak in leisure demand for several years,” the firm added. “Moving forward, sector growth will need to be fueled by the corporate and group segments, which will account for the lion’s share of demand after Labor Day.”

For some time, others have counseled that group and business travel were being hampered. That has of course been a concern throughout the pandemic, but you have to wonder to what degree corporations have found that they could continue doing business remotely, reducing travel costs and improving earnings at the same time. In any case, there’s “a considerable amount of uncertainty” through this year and the beginning of 2023, LARC said.

“Additionally, the corporate recovery will be somewhat dependent on the return to the office, which we expect to continue to gradually progress through 2022 and into 2023,” the report also said. “Additionally, while group attendance may be lighter than historically, the number of events is recovering rapidly, helping generate a base level of demand that will further support pricing power.”

But uncertainty still abounds. Office use is far off its norm, and there are increasing concerns that companies will find the prospect of reducing their office footprints — and their real estate obligations — too good to pass up.

As pent-up demand wanes, there will be winners and losers, and the firm cautions, “it would be wise for sector participants not to rely on basic economic growth estimates or those factors that drove outperformance over the initial phase of the recovery.”