According to the latest study, global travel patterns are anticipated to return to normal this year, stabilizing hotel market fundamentals to pre-COVID levels. While hotel RevPAR increased in all three global regions in 2022, RevPAR in the Americas reached 108% of pre-pandemic levels, with Europe being almost on par at 97%, revealed CBRE’s 2023 Global Hotels Outlook.
Although Asia Pacific’s RevPAR lagged at 68%, the recent easing of travel restrictions in China and Japan and the resurgent Chinese economy are projected to bring the region’s RevPAR to pre-pandemic levels this year.
Seasonality and the relative performance of different property types and locations are not expected to entirely return to 2019 figures due to increased work location flexibility, net-migration shifts and geopolitical, foreign exchange and economic differences that may make post-pandemic trends a bit tricky.
The consistent high inflation is pushing ADR, moderating margin gains and slowing down supply growth to below-average levels, the report said.
Hotel performance in the U.S. has been improving. Lodging demand and rates were boosted by record-low unemployment, modest consumer debt, remote work and wage hikes.
While RevPAR touched a record high in 2022, property-level gross operating profit is anticipated to touch new highs, up 62% YOY and 4.8% compared to 2019, based on the sample of hotels in CBRE’s monthly Trends in the Hotel Industry database.
Bookings via brand websites or apps, as a percentage of total hotel bookings, peaked in Q4 2022. Group bookings reached 99.4% and global distribution system bookings 92.3% of Q4 2019 levels, despite office attendance declining by half, as per Kastle Systems.
Airline passengers in Q1 2023 surpassed pre-pandemic levels despite 16.4 million or 41% lesser inbound international travelers. Relaxation of travel restrictions in Japan and China is projected to bring back affluent long-haul travelers to the U.S. and create a record summer travel season this year.
The weaker U.S. dollar and a 29% rise in average airfares, which may result in increased domestic than international travel by Americans, is another potential catalyst for a strong summer travel season.
Hotel loan delinquencies and special servicing have remained low so far this year. However, recent bank failures are a potential threat. With delinquencies running at 4.4% and special servicing at 6.7%, record cash flows should help offset higher interest rates.
According to the report, hotels will have the highest top-line growth (5.8%) and the lowest cap rate growth of all core property types this year. This, along with robust gross operating profit growth and consumer demand, will make hotels an asset class of choice for investors.
Trophy assets, boutique hotels in prime or supply-constrained destinations, drive-to leisure markets, group markets with a strong leisure appeal, select service brands linked to globally recognized franchisors and newer or remodeled CBD hotels have a lot of potential.
This market witnessed a strong recovery in 2022, partially from the halo effect of around a 20% rise in U.S. ADR from pre-COVID levels.
The Caribbean region thrived from the exposure it received once post-pandemic travel rebounded. The Dominican Republic saw record visitors in 2022, while Cancun recorded a near-record high. Tourists from the U.S. and Canada led demand.
Once a niche segment, all-inclusive hotels have constituted over 75% of new hotel construction in the region since 2015. Major hotel brands, like Hilton, Hyatt, IHG and Marriott, have been pursuing strategies to expand in this region, from signing new distribution agreements and launching new brands to acquiring regional brands and making selective acquisitions.
The presence of these major hotel chains has been bringing credibility in the eyes of institutional investors, which should bring the segment liquidity in terms of sale deals and more investment capital.
The average RevPAR of European hotels in 2022 increased to just under 3% of the pre-pandemic average, mostly driven by strong ADR growth, especially in the luxury segment.
This year is expected to be another positive year for the market, with ADR growth fueling overall performance. This should help offset the supply chain and labor shortages, which along with inflation, are pushing prices for the industry. Paris is expected to see a strong performance, driven by the Rugby World Cup in the fall and the Summer Olympics in 2024. Growth in occupancy is projected to be on the lower side.
However, China’s easing of travel norms is expected to drive hotel demand in Europe. An increase in business and meetings travel should offset any prospective slowdown in leisure demand.
The outlook for the Asia-Pac hotel market looks promising this year. The release of pent-up travel demand continues as major inbound and outbound tourist hubs (mainland China, Hong Kong SAR and Japan) reopened their borders. Markets like Australia, Korea, India and most of Southeast Asia — which reopened in early 2022 — have already seen hotel performance metrics exceed 2019 levels.
The overall market is projected to see modest growth performance throughout the year and a return to pre-COVID levels in early 2024.
International arrivals in leading Asia-Pac markets saw a substantial resurgence last year, totaling 10.4 million in December 2022, more than eight times the monthly average in 2021.
Countries that opened for travel in early 2022, like India, Korea, Singapore and Australia, regained around half of their 2019 international inbound traveler levels.
Despite a significant recovery in international arrivals, the United Nations World Tourism Organization reported that they were 56% lower than in 2019, compared with a global decline of 37%. But with the recent easing of travel restrictions in mainland China, Hong Kong SAR and Japan, a significant rebound in international arrivals in the region is anticipated this year.
The return of mainland Chinese travelers will significantly boost the Asia-Pacific hotel industry, as they are the largest source of tourists (around 40% of regional arrivals in 2019). Hong Kong SAR, Thailand, Japan, Korea and Vietnam were the top five destinations for mainland Chinese tourists in the area in 2019.
ADRs in the region (excluding Greater China) returned to growth in H2 2022, surpassing 2019 metrics. However, as occupancy remains low, RevPAR in several markets has yet to return to pre-pandemic levels.
Leisure travel and, more recently, group and inbound international travel have led recovery, while transient business travel has been slow. As the industry recovers, hoteliers are expected to face labor shortages and higher-than-average wage growth.
Korea, Australia and Singapore have been the top-performing markets, with ADR around 20% higher than pre-pandemic levels. Although ADR in Thailand rose 16% over the same period, RevPAR has not improved much.
This year, recovery will be more prominent among the existing laggards, including Hong Kong SAR, mainland China and Japan, as cheaper hotel prices in these markets will attract travelers. Taiwan will see a slower recovery as it has yet to reopen to mainland Chinese visitors due to ongoing geopolitical tensions.
Investment volume will remain somewhat stable in the next 12 months, especially in markets where fundamentals are strong. Refinance pressure, however, may cause some assets to be put up for sale, particularly in Korea and Australia.