Hotel fundamentals stand up to oscillating economy

LOS ANGELES — It’s tough out there, but it could be worse. Despite its best efforts, the global economy has not yet cratered and the hotel industry is not wavering in its resolve.  

In the U.S., the Federal Reserve has been working overtime to tamp down inflation by raising interest rates and, so far, the recession everyone is waiting for hasn’t come to fruition; in Europe, a rather mild winter has staved off dire concerns over energy shortages; and, in China, countrywide protests over draconian COVID lockdowns finally cajoled the government to lift restrictions, freeing the economy. 

For the time being, the world can take a collective breath. 

For the time being, so can the hotel industry — if you believe the data. 

During the Americas Lodging Investment Summit (ALIS), leaders from data firms rolled out their predictions and none were a death knell. In fact, some have even tweaked their forecasts up to reflect a brighter light at the end of the tunnel. However, it doesn’t mean they will be spot on and it will still be bumpy getting there.  

According to Amanda Hite, president and CEO of STR, the first quarter of 2023 will be the strongest of the year, but expectations of a GDP decline in Q2 and Q3 could throw a wrench in hotel demand. She noted a slowdown in average daily rate, which held steady during the pandemic, in the second half of the year. 

According to Hite, a 1-point decline in GDP equals 4 points of hotel demand decline. 

Despite what STR referred to as a “looming recession,” it predicts year-over-year rising RevPAR, up 3.7% in 2023 and 6.6% in 2024. However, real RevPAR indexed to 2019 will still be negative through 2024 until 2025, when it turns positive. 

On the bottom line, STR predicted a 2.5% growth rate. “Increased expenses will pressure profits,” Hite said. 

By segment, luxury, according to STR, has the most room to come back. “We don’t expect a slowdown there,” Hite said. “Travelers there aren’t as impacted by inflation. The expectation is to maintain demand and rate.” 

By segment, STR predicted that the upper-upscale segment will have the biggest gain at 8.9% in 2023, while the economy segment will end up 2023 with negative RevPAR, down 0.2 percent. 

For hotel owners, the next 12 months out are favorable, Hite suggested. “Supply growth is working in your favor,” she said, noting it at 1.2% growth in 2023, which is below historical levels. 

From left: Ryan Meliker, president and co-founder of LARC; Amanda Hite, president and CEO of STR; Michael Grove, COO of HotStats; Cindy Estis Green, co-founder and CEO of Kalibri Labs; and panel moderator Leeny Oberg, CFO and EVP, business operations of Marriott International.


Kalibri Labs measures, among other things, the cost of customer acquisition through guest folio data. Cindy Estis Green, co-founder and CEO, noted the legacy costs that are passed onto hotel owners to fill beds, whether from the OTAs or other intermediaries, which can be as high as 20% or more. “All revenue is not created equally,” Estis Green said.  

The good news, she said, is that is exceeding the OTAs in the distribution game. She noted the Monday through Wednesday business coming through, calling it a “greater strength to hotels.” 

Still, there is continued worry on the bounce back of corporate transient travel, which still has not popped back, as larger companies hold back or recalibrate how their employees take to the road. Estis Green said that most of the corporate business that is coming through is the unmanaged, smaller and medium accounts — not the global, Fortune 500 behemoths.  

Changing travel patterns are having an impact on even the way deals and projects pencil out. “You have to understand demand when you are underwriting,” Estis Green said, adding that, in this environment, brands and loyalty matter. “It’s meaningful,” she said. “How much is driven by it? 


Michael Grove, COO of HotStats, a profitability data-driven firm, made the case that hotels will potentially come out of the last few years healthier and leaner, as owners and operators pay better attention to cost lines.   

“Full-service hotels absorbed operational headwinds,” he said, “by stripping out some of the costs, especially fixed.” He said that full-service hotels are moving closer to a limited-service model in order to increase margins.  

Hotels are known as a good hedge against inflation because room rates can be reset daily, if not hourly. Problem is, as Grove pointed out, is that “wage rates and other costs don’t.”  

He noted that on a per-occupied-basis, utility costs remain up. “The way we operate hotels to maintain margins has to change,” he said. “We can’t just ride on RevPAR.” 

Meanwhile, Ryan Meliker, president and co-founder of LARC, a data consultancy focused on real estate and lodging companies, said he has built a “mild” recession into his model. He noted the extent to which corporate transient business has been impacted and though leisure travel has helped to blunt the effect, it, he said, will moderate in 2023.  

On the rate side, he said that ADR is currently being driven by group demand and inflation.  

On the investment side, he expected cap rates to moderately expand this year, before a period of compression in 2024 for some asset classes.