Asset manager hotelAVE bullish on corporate, group travel expectations

Not everyone is back in the office, but it doesn’t mean they won’t be on the road.

Last week, Truist hosted a conference call with asset manager hotelAVE and its CEO and founder, Michelle Russo, and the company’s CIO, Loren Balsam.

In their 2024 outlook, which reflects a no recession scenario, both corporate and group business is “among the most positive” in RevPAR growth indexed to 2019, expected to be up 5.8% YOY and 12% indexed to 2019. Other key metrics for 2024 include YOY ADR growth of 4% (corporate/group +6%/leisure +3%) and occupancy up 2 percentage points (corporate/group +6%, but leisure -2%).

Still, as Triust noted, corporate negotiated room rate growth after COVID hasn’t kept up with operating cost growth, creating a profit shortfall for owners. hotelAVE is projecting negotiated rate growth for 2024 of 5%-8% YOY, although Truist notes that the actualized rate growth may be somewhat lower.

Corporate negotiated rate seasons typically takes place in late summer/early fall and hotelAVE called it “tough timing for corporate RFP negotiations in a choppy macro.” Tech and entertainment are deemed to be currently challenged, “which we view as a continued headwind especially to San Francisco/Seattle and Los Angeles,” Truist wrote.

The propitious prognostication, however, is tempered by inflationary costs on operations, which are detrimental to margins. hotelAVE also noted the several union renegotiations through year-end 2024. On the financing and development front, high interest rates will pressure cash flow and impact transaction activity.

Though leisure RevPAR growth in 2024 is implied to be slightly up, hotelAVE expects continued YOY leisure occupancy declines with modest ADR growth, which could dampen the outlook for owners, specifically REITs, that have high leisure market exposure, Truist commented.

Leisure room rates are expected to keep pace with inflation, while the leisure occupancy index in 2024 remains ahead of group and far ahead of corporate, hotelAVE forecasts. Corporate demand for 2024, meanwhile, is estimated at 85% of 2019 levels.

Of note, hotelAVE noted a high correlation between full-service hotel occupancy and office leasing volumes, which speaks to the challenges in a market like San Francisco compared to a post-pandemic business travel beneficiary, such as Miami.

Potentially the biggest mover is group business, which is forecasted by hotelAVE to have a robust recovery with 2024 demand equaling 2019. Positive fundamentals for group next year include:

  • Association booking on an upswing.
  • Long-term outperformance since COVID “because of the fundamental shift in the corporate traveler” and the need to get together for association meetings and corporate events.
  • Group ADR +7% YTD and 2024 outlook is for similar YOY growth. “If group RevPAR grows at a healthy/above-inflationary manner, the total revenue spend ramifications (out-of-room spend) are positive,” wrote Truist, pointing particularly to companies such as Hyatt Hotels Corp. and Ryman Hospitality Properties. “Total revenue growth that is strong has implications for C-corp base and incentive management fees and in theory better operating efficiencies,” it added.
  • Expectations that the historic relationship between group to transient rate normalizes at 93%.
  • Expectations that group will continue to grow a little bit more in 2025 and then settle.


In the midst of and shortly after the pandemic eased, it was leisure travel that undergirded the hospitality industry. The farther removed from the pandemic, the closer we are to normality, which means leisure travel will have a correction amid further recovery in corporate business. This will have a major impact on markets and segments of the hotel industry and RevPAR performance.

As Truist pointed out in its hotelAVE conference call: There will be “continued bifurcation in the major markets’ RevPAR performance with leisure moderation and business travel recovery,” noting one hotelAVE example, calling New York a “bull market,” with heavier reliance on international/group/corporate demand, and a current “bear market” in Miami, where there is RevPAR decline in recent months (still up considerably since 2019.)

Other bull markets cited by hotelAVE include: Boston, Chicago, Detroit, Minneapolis, Philadelphia and Washington, D.C. Bear markets: Los Angeles, Orange County (Calif.), Phoenix, San Diego and Tampa.


Not surprisingly, labor challenges persist and wages are outpacing rate growth, contended hotelAVE, which expects 2024 national wage growth at 4% to 5%. This is against industry wage rates that have increased 27% from January 2020 to June 2023. Benefit costs are forecasted to increase 5.4% in 2023 versus 3.2% in 2022 (per Marsh McLennan data).

The eye of the storm is still on Los Angeles, where hotel workers have striked for better wages and working conditions. The union is asking for an $8-$10 increase in wages/benefits over the next four years, about +10% per year). hotelAVE is underwriting 5% wage/benefit growth for 2024, with Pittsburgh, L.A. and Las Vegas currently in negotiation.

Other cost pressures beyond labor include food inflation (moderating), utility costs (significantly down since 2022) and insurance (+20% YOY).

On GOP margin, there is no expectation that margins will stabilize better than pre-COVID levels, even despite changes to operating models that pared down and streamlined many processes. hotelAVE noted that the hotel industry has “never really gotten beyond” a 38.8% GOP margin even in different cycles and despite “amazing operational efficiencies” and “sophistication in revenue management.”


There have been fewer asset transactions on account of higher interest rates making it harder to finance deals. Loan-to-value ratios have decreased to 50% to 60%, said hotelAVE, with lenders requiring things like additional credit enhancements, hedges or structure/reserves to minimize payment risk and reserves for renovations.

However, there is indication that transactions will pick up in 2024 as more loan maturities come due, owners rather selling than having to refinance or take extensions and delayed property improvement plans that the brands are now demanding.

Commented Truist: “It’s a tough environment for new-build development especially for full-service hotels and high-rated select-service (e.g. upscale). Transactions could lead to acquisitions by the well-capitalized REITs at more attractive pricing— assuming the bid-ask spreads come in. We find that several lodging REITs are hungry to see structural financing challenges from private hoteliers to provide greater firepower to acquire. C-corps may benefit from a harder push on brand standard renovations as we find hotel quality levels mixed since COVID with still a fair amount of deferred CapEx.”