CBRE Hotels has reduced its near-term outlook for hotel performance this year as weaker-than-anticipated demand this summer resulted in a shortfall in RevPAR in Q2 2023.
The forecast for 2023 RevPAR has now been revised to $96.64, up 4.6% YOY but down $1.25 from the forecast in May. The revision predicted a 70 bps dip in expected occupancy compared with the previous forecast.
ADR is predicted to rise by 3.6% through the year, down 10 bps from the earlier forecast.
CBRE’s baseline scenario forecast anticipates 1.6% average GDP growth and average inflation of 4.3% this year. The strong correlation between GDP growth and RevPAR changes in the economic outlook is expected to have a direct impact on the performance of the lodging industry.
Based on an analysis of travel trends, CBRE found that a record number of Americans were traveling abroad this summer, particularly to Europe and the Caribbean.
“Inbound international travelers to the US are still 27% below their pre-pandemic levels, causing a temporary imbalance in demand. As long-haul flights from Asia are added back and visa delays ease, we expect to see an uptick in inbound international travel to the US, supporting further demand growth,” said Rachael Rothman, CBRE’s head of hotel research & data analytics.
For the first time since the post-pandemic recovery began in Q2 2021, demand slipped 1.2% YOY in Q2 2023. The 2.6% growth in ADR was as per CBRE’s earlier forecast. The combination of lower-than-expected demand and in-line ADR growth saw muted RevPAR growth (1.1%), below the forecast of 4.4%.
Since there has been a history of a strong correlation between hotel demand and GDP growth, the dip in demand in Q2 came as a surprise considering the stronger-than-expected growth of GDP this quarter, CBRE said.
“This disconnect in trends suggests consumer preferences have temporarily shifted, as more Americans are traveling overseas, particularly to Europe and the Caribbean, rather than traveling domestically,” said Michael Nhu, senior economist and CBRE’s head of global hotels forecasting.
In Q2, the best-performing location type was urban, where RevPAR grew to 4.7%. The worst-performing location type was a resort, where RevPAR fell 3.7%. Despite the pullback in resorts during the quarter, this location type was around 15% above its pre-pandemic levels.
CBRE predicted hotel supply to grow at a 1% CAGR in the next five years, below the industry’s 1.6% long-term historical average.