Hotel demand may start to taper this year, STR says

LOS ANGELES — The tremendous pent-up demand that has been driving hospitality’s Covid-era comeback may finally be showing signs of deceleration in the U.S.

Although STR unveiled a slightly upgraded U.S. hotels forecast for 2023 at the Americas Lodging Investment Summit (ALIS) here, Amanda Hite, STR president, warned ALIS attendees that demand levels are likely to begin tapering off later this year.

“The first quarter is going to be by far the strongest of this year,” Hite told the audience during a panel discussion on Monday. “As we move into the second quarter, we’re going to see hotel demand start to slow.”

Hite pointed out that STR forecasting partner Tourism Economics is predicting a decline in GDP for the second and third quarters of this year.

“What we know about our industry as we look at prior downturns is that for every point of GDP decline, we usually have four points of demand decline for hotels,” Hite said. “We don’t think we’re going to have that [level of decline] this year. But we will see a GDP slowdown, which means we are going to see demand slow down.”

Although STR lowered its occupancy prediction by 0.1% for the year, with 2023 U.S. hotel occupancy now expected to come in at 63.6%, average daily rate (ADR) and RevPAR predictions for the period were lifted 0.5% and 0.3%, respectively. STR now expects U.S. hotel ADR to increase 2.1% and RevPAR to grow 3.7% this year.

Later during the panel, Ryan Meliker, president of Lodging Analytics Research & Consulting, echoed Hite’s concerns around a near-term economic slowdown.

“We do assume that we’re going to be seeing an economic recession across the U.S. in early 2023,” Meliker said.

Meliker, however, said he expected the downturn to be “brief” and “mild” in nature.

“You’re still going to continue to see corporate transient growth, it’s just going to be a little bit more muted than it would be if economic growth was stronger,” he added. “Leisure [has been] well above historical levels over the past couple of years, but that will moderate in 2023, which will create some headwinds for markets that have outsized leisure exposure.”

Meanwhile, STR made downward adjustments to its 2024 U.S. hotel forecast, though the industry is still expected to remain in growth mode.

According to STR, U.S. occupancy is expected to improve to 65.3% for 2024. ADR is predicted to climb 3.8% and RevPAR is on track to grow 6.6% next year. 

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