CBRE: U.S. lodging demand forecast to return to pre-pandemic levels by Q4 ’23

Based on stronger than expected performance during the first quarter of 2021, plus encouraging economic and vaccination news, CBRE Hotels Research forecasts U.S. lodging demand will return to pre-pandemic levels by the fourth quarter of 2023.

The strength in lodging demand will support pricing, but occupancy gains will be somewhat offset by new supply, as fewer development and conversion projects were sidelined than previously forecasted. As a result, the recovery in occupancy will not occur until the fourth quarter of 2025 due to greater supply growth during the 2020-2022 period than coming out of prior recessions. The net result is a return of 2019 RevPAR levels in the third quarter of 2024.

According to CBRE Hotels Research’s June 2021 edition of Hotel Horizons, ADR for U.S. hotels will return to 2019 nominal levels by the first quarter of 2024. That trails the recovery in lodging demand by only one quarter. After suffering a 22.5% ADR decline during 2020, U.S. hoteliers are seizing the opportunity presented by the bounce back in demand by maximizing room rates as much as possible. CBRE projects a 4.3% increase in ADR for the entirety of 2021, followed by a strong 11.4% rise in 2022. Previous research shows that strong ADR growth helps improve flow-through, supporting a recovery following the 80% decline in gross operating profits suffered last year.

“We are encouraged by the pace of demand growth so far in 2021, not just for hotels, but for air travel, rental cars and alternative forms of lodging, as well,” said Rachael Rothman, head of hotels research and data analytics, CBRE. “Clearly there is a pent-up desire to get back on the road, especially for leisure travel. Anecdotally, we are seeing early signs of improvement in group travel, but the overall pace of the recovery in group travel and corporate travel is less certain at this point.”

A headwind to the strengthening demand is a forecast 2.1% lodging supply increase for 2021. Most properties that closed in 2020 have opted to reopen in response to the accelerated growth in demand. Concurrently, delays in the delivery of furniture, fixtures and equipment, along with construction labor shortages, pushed the opening, and reopening, of new and renovated properties into this year.

When looking at the recovery patterns by chain scale, the influence of supply growth becomes more evident. Except for the upscale segment, the chain scales forecast to experience the greatest gains in supply will lag in RevPAR recovery.

Market recoveries vary
“Local market factors increasingly are influencing the projected performance of U.S. hotels,” Rothman said. “In general, properties located in smaller, remote and resort markets suffered less and are poised to recover to pre-pandemic levels faster. On the other hand, the larger, urban, gateway markets that are more dependent on in-bound international visitors and group demand will lag in recovery.”

In 2021, hotels located in San Bernardino, CA; Dayton, OH; Virginia Beach, VA; Jacksonville, FL; and St. Petersburg, FL, are forecast to achieve a market average RevPAR 80% or more of their respective 2019 RevPAR levels. Conversely, recovery for hotels in New York and San Francisco will be extended. Hotels in these markets are projected to achieve RevPAR less than 40% of their 2019 levels in 2021.

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