Predictions earlier this year warned of a recession during the second half of 2023. However, the trend has now shifted toward the anticipation of a “soft landing,” wrote CoStar in its September real estate data update for the hospitality sector.
CoStar and Oxford Econometrics, one of its data sources, still call for a recession later this year. This should allow for a comparatively quick revenue acceleration in the latter part of 2024, boosted mainly by the recovery of room rate.
The industry seems to be preparing for a downturn, as more than 70% of operators have said in a recent CoStar survey that the expectation for a recession had a minor or some impact on their budget planning.
Weekday RevPAR has been recovering, and the share of weekday demand has been normalizing at a rapid speed. Urban hotels have reported better occupancy midweek than earlier, while resorts continue to report healthy demand on the weekends but softening midweek occupancies.
While short-term rentals continue to grow, the latest inventory mostly tends to be bigger houses instead of studio or one-bedroom apartments. This shift has resulted in short-term rental companies showing stronger room rate growth. However, zeroing in on comparable accommodation, the price growth of one-bedroom apartments in the short-term rental market reflects the growth of hotel room rates. The preference for bigger houses in short-term rental markets is expected to continue till 2024.
Space per capita trends and Class B mall occupancy have hit record lows, the report said. After reaching a record high of 56.5 square feet per capita in early 2009 and experiencing an influx of new ample supply, the per capita retail space in the largest 45 U.S. retail markets has consistently decreased, dropping by a total of 3.9%. Most recently, it reached a multi-decade low of 54.3 square feet per capita.
Construction activity remained limited in most markets across the U.S. An active pace of redevelopments, particularly in the former department store space in older malls, saw more than 130 million square feet of retail space being demolished in the past five years.
According to the report, markets like Austin, Orlando, Nashville, Atlanta, and Seattle led in supply contractions per capita, with the average decline amongst the top five being 15% or 9.3 square feet per capita.
On the other hand, retail inventory per capita grew in 11 markets in the past 15 years. The average rise in supply per capita in these markets was 3.1% or 1.9 square feet. The common point between these markets is the hardship in growing their local consumer base, as only one market (Miami) posted a significant population during that time.
Markets that saw the biggest expansion in supply per capita were the Rust Belt cities, like Milwaukee, Cleveland, Pittsburgh, Chicago, and Detroit.
The national vacancy rate has held steady at 6.9% during the first two months of Q3. This stability is significant, considering the fast run-up seen in vacancy since Q3 2021. The market is expected to stabilize in the 3-star space. The imbalance in supply and rent at the top end of the market is not predicted to stabilize for at least the next 12 months.
However, the middle of the market was strong in Q2, with rent holding positive at 1.7%, while 4- and 5-star properties turned negative. For the first time since 2021, there was an uptick in 3-star absorption.
The fear of a looming recession seems to be easing, and with inflation also showing signs of slowing down, the chances of an economic soft landing look quite strong. This could, therefore, lead to the beginning of pent-up household formations being released.
The existing conditions do not mean multifamily is recovering, the report stated. However, this could be the initial step on the road to stabilization.