CBRE Raises Hotel Forecast, Trade Group Casts Doubt

CBRE has raised its 2022 national forecast for hotel sector performance, citing better-than-expected fundamentals and below-average supply growth as well as strong domestic leisure travel.

The largest brokerage now is projecting that hotel RevPAR will reach 2019 nominal levels by Q3 2022, moving up its previous forecast of Q3 2023 by an entire year. RevPAR actually exceeded the pre-pandemic average of $184 in December, but then fell about 20% below the 2019 level during Q1 2022.

CBRE now is forecasting average daily room rate (ADR) growth of 29.7%, a 41.8% increase in demand and a 75.06% increase in RevPAR this year nationally.

The company said ADR will once again exceed 2019 levels following a “pause” during Q1 2022, citing an anticipated recovery in inbound international travel, the resumption of more business travel and higher inflation as drivers of higher hotel rates.

“Higher room rates will lead to a quicker return to 2019’s nominal ADR levels. But, from a profitability perspective, inflation will be a headwind through higher utilities, supplies and labor,” said Rachael Rothman, CBRE’s head of hotel research and data analytics, in a statement.

CBRE forecasts that supply in the hotel sector will increase by a 1.2% compound annual growth rate, well below the hotel sector’s historical average of 1.8%.

CRBE’s new projection for the hotel sector—in particular its optimism regarding a recovery for business travel—stands in stark contrast to an April report from the American Hotel and Lodging Association and Kalibri Labs which said continued shortfalls in revenue from business travel—the hotel industry’s largest source of revenue—would cripple the hotel recovery in major markets in 2022.

During the first two years of the pandemic, the hotel sector lost an estimated $108B in business travel revenue. AHLA projected another $20B in losses for 2022, with major markets like NYC having business travel revenue shortfalls of more than 50% below pre-pandemic levels, GlobeSt.com reported.

You might expect that the good news in the updated CBRE outlook would get a standing ovation from hotel owners in the Big Apple, where the industry was clobbered by the pandemic, setting off a fire sale of struggling hotels.

Instead, CBRE’s rosy scenario was greeted by a raspberry of a Bronx cheer from the Hotel Association of New York City. NYC’s leading hotel trade association—which is lobbying for a reduction of more than 50% in the city’s hotel occupancy tax, from 5.88% to 2.88%—is questioning the validity of CBRE’s projections.

Vijay Dandapani, president and CEO of the trade group, told the New York Post that CBRE’s outlook advisory is too optimistic. Dandapani said CBRE’s new projection that the RevPAR of NYC hotels would “leapfrog back to 2019 numbers” this year is “very unlikely.”

“We are cheerleaders for the city, but there’s a gap between expectations and hope,” Dandapani told the tabloid.

The Hotel Association CEO said the association’s data for the first five months of 2022 show average RevPAR in NYC rising from 2021 lows, but the current average of about $155 is still well below pre-pandemic levels of $184.

“In order to catch up, RevPAR would have to considerably exceed $155 for the rest of the year. Crossing the chasm is not impossible, but it is unlikely,” Dandapani told the NY Post.

The trade association chief also noted that comparisons of RevPAR from 2019 and 2022 are skewed because the overall inventory of hotel rooms has shrunk during the pandemic from 122,000 to 100,000. The numbers also are skewed, he said, because many hotels in Manhattan remain closed.

Dandapani said headwinds that continue to impact negatively on NYC’s hotel industry include a slow return to business travel and a near-complete loss of visitors from China and South America. The main positive news, he said, is that the average price for a hotel room in NYC—which he estimated at $263—is closing in on 2019 prices.