Hotel Fundamentals Continue to Slip
Revenue per available room (RevPAR) continued to slip as did hotel loan originations.
Signs that the hotel industry is still lagging its pre-Covid levels are evident in CBRE’s October review of the state of the sector. Revenue per available room (RevPAR) continued to slip as did hotel loan originations.
Hotel occupancy fell 1.7% in August, precipitating a 0.7% drop in RevPAR that followed a 1.2% drop in July, as CBRE reported previously. Urban hotels did show a 3.7% growth in RevPAR, but still did not reach 2019 levels. “The spread between real and nominal RevPAR increased to 17.3 p.p. in August versus 14.1 p.p. in August of 2022,” CBRE noted, adding that the pace at which this is happening appears to have slowed.
While total revenue grew 2.5% in July – outpacing RevPAR growth – gross operating profit margins slipped 1.8 p.p. and profit dropped 2.5% year over year.
Only 11 hotel loan originations were recorded in August, compared to 17 the prior year. Spreads narrowed from 478 bps in July to 419 bps in August.
A sore point for many hotels – rising wages – continued to be a problem in August. Wages rose 4.7%; this, however, is an improvement on the 9% wage growth recorded in 2022. “National wage gains are still outpacing RevPAR and airfare growth,” CBRE noted. At the same time, hotels posted fewer job openings in August.
The beneficiaries of the hotel slump appear to be short-term rentals. In August, hotel demand growth slid 1.3%, while short-term rental demand rose 7.6%, suggesting that these rentals continue to take share from hotels, CBRE stated.
As to the future outlook, CBRE had good and bad news. It raised its 2023/2024 GDP outlook by 0.8% to 2.7% from June to September. However, “the 2025 GDP forecast was negatively revised from 2.3% to 2.0%,” it noted.