Hotels See Record Highs But Why?

It wasn’t so long ago that pandemic restrictions battered hotels right and left. “Maybe they’ll become work centers for remote employees,” some said. Others wondered if the businesses would last.

Pandemic aid helped, but even more has been a reversal of fortune. Currently, the hotel industry has seen average daily rates (ADRs) that have hit record levels in several markets, according to Moody’s Analytics.

Good for the hotels, no one wanted to see them all go under, but, really, how the heck did it happen/? And how long can it last?

The first question is pretty tangled, according to Moody’s, which says it is “speculating” on the answer. The pandemic caused overall occupancy to drop by almost 30 percentage points. Revenues by available room fell by 64.7% inside of a year.

And now, occupancy rates are above pre-pandemic ones and average daily rates are, on average, incredibly strong. “It’s (very much) about the demand side,” the firm wrote. “If there are more hotel rooms available now (on average) relative to the end of 2019, and

DRs and occupancies have exceeded pre-COVID levels, the story about demand for lodging being exceptionally strong is credible. Call it revenge travel, with people essentially saying that Covid isn’t the boss of them.

Moody’s isn’t the only one that’s seen strong improvement in the industry. Things have turned around, according to a new report from Green Street. “U.S. resort hotels have enjoyed an unprecedented run of pricing power since mid-’21, with average daily rates (ADR), RevPAR, and hotel EBITDA well-above pre-Covid peaks in many leisure destinations, especially “drive-to” locations,” the firm wrote. But the real boost has been to resort hotels rather than urban. For example, year-to-date revenue per available room (RevPAR) is up 19% over 2019 for resorts. For urban hotels, it’s down 11%.

So, perhaps the changes have to do with the data being examined and who is looking? Even Moody’s, when it came to looking at ratios of Q2 in 2022 to Q4 of 2019—recent to pre-pandemic—found that the top five markets were Myrtle Beach, Florida; Omaha, Nebraska; San Diego, California, Virginia Beach, Virginia; and Savannah, Georgia. Boston shows up seventh, followed by New Orleans and Chicago in eighth and ninth places. “Within the top 10 listed in Figure 6, only Chicago is a top 5 market,” the report said.

One factor holding a number of geographies back is the lack of recovery in business travel.

As for the second question, how long even these good times, as oddly as they may seem distributed, last? Probably not very given economic thrashing. “This presents a bit of a pickle for forecasting – despite astoundingly strong performance over the course of 2022, our view that hotel ADRs will at some point revert to levels closer to the mean compels us to render near-term forecasts that show negative growth trajectories,” Moody’s says.