CBRE has again raised its forecast for hotel performance this year, as stronger-than-anticipated demand and more modest supply growth boosted occupancy gains.
The forecast for 2023 RevPAR has been revised to $97.89, up 6% YOY and an increase of $0.43 from the previous forecast. The positive revision is based on a 65-basis-point rise in estimated occupancy over the February forecast.
ADR is now expected to rise by 3.7% in 2023, down from the previous forecast of 4.2% due to the slightly lower inflation expectations and a bigger mix of group and travel and shoulder-period (between peak season and off-season) demand, which are often at a lower rate.
CBRE’s baseline-scenario forecast predicted 0.8% average GDP growth and average inflation of 4.6% this year. Considering the strong correlation between GDP and RevPAR growth, changes in the economic outlook will directly affect the lodging industry’s performance.
“We are already starting to see signs that the easing of travel restrictions in Japan and China, combined with continued improvements in group and independent business demand, are bolstering demand heading into the heavy summer travel season,” said Rachael Rothman, CBRE’s head of Hotel Research & Data Analytics.
The U.S. economy grew at an annualized rate of 1.1% in Q1 2023, the third consecutive quarter of positive GDP growth. The rise in economic growth led to a Q1 record U.S. RevPAR of $88.33, up 15.5% YOY from Q1 2022.
RevPAR growth was fueled by a 9.6% increase in ADR and a 3.1% rise in occupancy YOY. Strength in the quarter was due to continuing improvement in group business, inbound international travel and a rise in traditional transient business demand.
With the impact of COVID-19 restrictions on hotel fundamentals in Q1 2022 and a projected deceleration in GDP growth in the second half of 2023, CBRE predicted that Q1 2023 would be the high point of the year for RevPAR growth. The growth rate is expected to decelerate to the 4-5% range in the coming few months before further decelerating to the 2-3% range in Q4 2023.
Despite the moderating rate of GDP growth, several travel-specific tailwinds along with growth in employment and wage increases should see another record year for RevPAR in 2023, said Michael Nhu, senior economist and CBRE’s head of global hotels forecasting.
CBRE has predicted that hotel supply will rise at a 1% CAGR in the next five years, below the industry’s 1.6% long-term historical average.