CBRE Lowers Major Market Annual Performance Forecast

Based on second quarter performance, CBRE Hotels’ Americas Research has downgraded its outlook for 2023. According to Kalibri Labs, U.S. hotels experienced a 1.1 percent increase in RevPAR during Q2 2023. This is just one-fourth of the 4.4 percent RevPAR gain that was expected for the second quarter earlier this year, based on the previous forecast. The under-performance was mostly attributable to the 1.5% decline in occupancy compared to Q2 2022. Because of the poor second quarter performance and updated economic outlook, CBRE is now forecasting a 4.6 percent annual increase in RevPAR for U.S. hotels in 2023. This is a 1.4 percentage point reduction from the 6.0 percent mark published in our May 2023 Hotel Horizons® report.

CBRE’s outlook for the major U.S. markets has also been downgraded. According to the August 2023 Hotel Horizons® reports, in aggregate the 65 markets in the Hotel Horizons® universe are forecast to achieve an annual RevPAR gain of 6.6 percent during 2023, down from the 8.6 percent RevPAR growth rate published in the May 2023 reports. The difference is primarily due to the 0.3 percent decline in occupancy during the quarter. The 6.6 percent annual RevPAR gain for 2023 is forecast to be the result of a 2.6 percent increase in occupancy, and a 3.9 percent increase in ADR.

Figure 1: Change in quarterly U.S. RevPAR Forecast

*Actual 2nd quarter change
Source: CBRE Hotels Research, Q2 2023 Hotel Horizons® Forecast.

Supply and Demand

The supply of hotel rooms entering the major markets in 2023 is now forecast to increase by 0.7 percent, down from CBRE’s 0.8 percent supply growth forecast in May 2023. Despite the reduction in the number of new rooms expected across the nation, some U.S. cities will experience significant gains in competition during the year. Hoteliers in Austin, Nashville, Fort Worth, Salt Lake City, West Palm Beach, and Nashville will see the greatest increases in the number of hotel rooms, with growth rates above 2.0 percent in 2023.

The strong increases in the demand forecast for 2023 in Washington D.C. (11.5%), New York (10.7%) and Minneapolis (7.1%) will outpace their concurrent growth in supply. This indicates that these markets, which initially lagged in the COVID-19 recovery, are still actively recovering and poised for continued growth. Other markets projected to enjoy healthy increases in demand during 2023 are Kansas City (6.8%) and Chicago (5.8%).

Five out of the ten lowest demand growth markets are located in the southeast U.S., indicating that demand is stabilizing in sunbelt markets after witnessing high growth rates during the initial COVID-19 recovery years. However, five of these markets have suffered declines in demand during the first six months of 2023, which should extend to declines in demand for the year. They are Birmingham (-4.4%), Tampa (-2.0%), Cleveland (-1.5%), Albuquerque (-0.5%) and Richmond (-0.3%).

Figure 2: Greatest/least change in supply

Source: CBRE Hotels Research, Q2 2023 Hotel Horizons® Forecast.

Figure 3: Greatest/least change in demand

Source: CBRE Hotels Research, Q2 2023 Hotel Horizons® Forecast.

Occupancy

Lags in occupancy growth can be attributed to record levels of U.S. citizens traveling abroad this summer coupled with the delay of international travelers coming to the U.S. Therefore, the forecast for occupancy change for the 65 Hotel Horizons® markets in 2023 has been downgraded from 4.2 percent growth in May 2023 to 2.6 percent in August 2023. Of the 65 markets, only seven are now forecast to recover to pre-pandemic levels by year-end 2023. This is down from the 13 markets that were forecast to post occupancy recoveries back in May.

The five markets forecast to experience the greatest declines in occupancy are San Bernadino (-1.8%), Birmingham (-1.7%), Dayton (-1.1%), Jacksonville (-0.9%), and Albuquerque (-0.8%). Conversely, aforementioned strong growth in demand translates to the greatest occupancy gains in markets such as Washington D.C. (9.6%), New York (9.0%) and Newark (6.6%), Albany (6.2%), and Minneapolis (5.8%).

Figure 4: 2023 forecasted occupancy as a percent of 2019 occupancy

Source: CBRE Hotels Research, Q2 2023 Hotel Horizons® Forecast.

Market Spotlight – Tampa, FL

Tampa is forecast to see the greatest change (8.3%) in ADR among the 65 Horizons® markets in 2023. Tampa benefits from a diversified economy driven by the growing Tampa International Airport, recent success among the professional sports teams, and a diversity of industries such as financial services, biotech, and international trade. The presence of several local universities provides a skilled labor force to the market.

Unlike other sunbelt markets that have experienced a deceleration in ADR growth during the last two years, Tampa is forecast to continue driving rate through 2023 with the addition of new luxury hotels and many branded properties having recently, or are currently, undergoing renovations. Prior to 2020, Tampa did not have any luxury hotels but since then, two luxury properties have entered the market that are helping elevate the overall market ADR attracting higher-rated hotel demand. However, with demand patterns softening, the outlook for future ADR and RevPAR gains slows down beyond 2023.

Figure 5: 2023 annual performance Tampa, FL vs. Horizons® 65 markets

Source: CBRE Hotels Research, August 2023 Hotel Horizons® Forecast

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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.