U.S. Major Market Occupancy Begins its Path to Recovery

According to the May 2023 edition of Hotel Horizons®, CBRE is forecasting national occupancy to increase by 2.2% in 2023, pushing the national occupancy level to 65.5%, or 98% of 2019 levels by the end of the year. This 2.2% growth rate is well above the long run average of 0.8%. For the nation’s major markets, the outlook is even more positive, with occupancy growth for the 65 major markets projected to increase by 4.2% in 2023, resulting in an average occupancy rate of 69.7%. This is 96% of the 2019 major market occupancy level.

Within the markets covered in Horizons®, 20% are expected to achieve 100% of 2019 occupancy levels in 2023, compared to just 6% of markets that recovered in 2022. Some of the markets forecast to recover to 2019 occupancy levels are Sunbelt markets such as Savannah (104%), Tampa (103%), Virginia Beach (102%), and Coachella Valley (102%). Continued year-over-year growth of ADR (4.3%) and RevPAR (8.6%) is expected in the upcoming summer months as the U.S. experiences an uptick in leisure demand and inbound international travel, in conjunction with lower-than-average levels of supply growth (0.7%), relative to the long run average of 1.3%.

Figure 1: 2023 Forecasted Occupancy as a Percent of 2019 Occupancy

Sources: CBRE Hotels Research, Q1 2023 Hotel Horizons® Forecast.

Supply & Demand Trends

Lags in supply growth can be attributed to increased cost of construction, financing difficulties, and an impending moderate recession. Markets with the lowest levels of supply growth are experiencing decreases in supply in 2023 and include Cleveland (-2.1%), Birmingham (-1.7%), Hartford (-1.6%), and Albany (-1.5%). Markets in which supply is still growing and is well above the national growth rate include Austin (4.1%), Salt Lake City (2.9%), New York (2.7%), West Palm Beach (2.3%), and Nashville (2.3%).

Washington, D.C. (12.5%), New York (11.2%), and Minneapolis (9.7%), are forecast to experience the greatest change in demand during 2023, all well above the national forecast of 2.9%. These markets continue to recover from 2022, which was characterized by lower levels of demand in urban core, business-transient focused markets during the first half of the year. Markets with the lowest levels of demand growth include Cleveland (0.9%), Hartford (0.9%), Birmingham (0.7%), Albuquerque (0.6%), and Tampa (0.2%).

Figure 2: Greatest/Least Change in Supply

Sources: CBRE Hotels Research, Q1 2023 Hotel Horizons® Forecast.

Occupancy

The market with the highest occupancy level in 2023 is projected to be New York, which is expected to exceed its long run average by 2.7% and average national occupancy by 25%. This will be largely due to the anticipated return of international travelers. The market with the lowest occupancy level is projected to be Pittsburgh, which is 5.8% below its long run average occupancy and 11.6% below the average national occupancy.

Within the 65 major markets, lower-priced hotels recovered to 2019 occupancy levels in 2022 and are now seeing the lowest levels of occupancy growth into 2023, as their performance stabilizes. Into 2023, middle-priced and upper-priced hotels will continue to see strong growth trends. Upper-priced hotels are anticipated to grow 7.3% while middle-priced hotels will grow by 4.1%.

Figure 3: Change in Major City* Occupancy by Chain-Tier**

Sources: CBRE Hotels Research, Q1 2023 Hotel Horizons® Forecast.

Market Spotlight – Phoenix, AZ

Phoenix, AZ is one of the top 25 Hotel Horizons® markets and is forecast to achieve one of the strongest ADR gains during 2023 (7.4%), outpacing both the U.S. (3.7%) and the 65 Horizons markets (4.3%). The relatively strong ADR growth can be attributed to gains in Q1 2023, following the Barrett-Jackson car auction in January, the 2023 Super Bowl, WM Phoenix Open in February, MLB Spring Training in February and March, and Taylor Swift’s Eras Tour in March. This ADR will lead Phoenix to outpace both 65 Horizons® markets and the nation in RevPAR growth (9.4%) for 2023.

For Phoenix, occupancy will recover to 2019 levels in both the lower- and middle-price tiers, due to the rate of demand growth occurring in the market, which is outpacing supply growth. Demand growth can be attributed to Phoenix’s “drive-to” market nature that promotes leisure demand, as well as its ability to broaden and diversify its commercial demand generators to include industries such as healthcare, financial services, technology, aerospace, education, and renewable energy. Future demand growth will be driven by major projects occurring in the market, including the construction of the Taiwan Semiconductor Manufacturing Company’s $35 billion campus.

Figure 4: 2023 Phoenix Occupancy, ADR and RevPAR Comparisons

Sources: CBRE Hotels Research, Q1 2023 Hotel Horizons® Forecast.

Lindsay Dyer is a Senior Research Analyst for CBRE Hotels Research. To learn more about the Hotel Horizons® forecast reports for 65 markets in the United States, please visit pip.cbrehotels.com/hotelhorizons.