Summertime, and the living was easy for many hotels. Then came July. Though officially still summer, the sun seemed to shine a little less brightly on less-pricey hotels. And a new forecast from CBRE indicates continuing overcast ahead with signs of growing property distress and lower growth.
As the season opened, consumers had money to travel as wage growth outpaced room pricing, and falling airfares encouraged them to do so, according to CBRE’s September update on the hotel industry.
In July, however, revenue per available room (RevPAR), a key performance measure, fell 1.2% on declining occupancy to 2.1%, despite a modest 1% gain in the average daily rate (ADR), another key performance indicator.
“Markets in contraction continue to increase,” CBRE reported. “Real RevPAR continues to decline as nominal RevPAR lags inflation.”
Only urban and airport hotels showed improved RevPAR in July. “RevPAR trends in the lower tier have begun to normalize. The most recent pockets of strength are in the higher-priced hotels.” Indeed, RevPAR in economy hotels fell by 6.7% in July, the report noted. In contrast, upscale and luxury hotels did well.
CBRE attributed part of the problem to higher salaries for hotel workers. “Overall, profits have been declining for three months because of continued wage growth, up 5.5% in July, a compound annual growth rate of 8% since the beginning of the pandemic.”
While chain hotels continue to show growth, independents bring down the overall results with decreases in RevPAR from April through July 2023 compared to 2022. Resorts declined for four months in succession. Both demand and ADRs have declined for midscale and economy hotels.
“Early indicators of property distress are increasing. Profit declines are contributing to an uptick in delinquencies, from 5.4% to 5.9%,” CBRE reported, noting this could be a hint of increased need for special servicing in the future.
On top of this, it noted, average hotel CMBS hit a post-pandemic low of seven originations, compared to 19 a year ago, likely due to higher interest rates and widening credit spreads in July.
“We are lowering our 2023 RevPAR growth forecast from 6% to 4.6% owing to a weaker than expected Q2 2023,” CBRE summed up.