U.S. Hotels State of the Union December 2023 Edition

Key Takeaways:

• Economy

  U.S. loan origination was down again in October versus 2022.
  The pace of loan origination continued to slow in October to 5 from 10 a year ago as interest rates continued to rise. Hotel CMBS interest rates reached 9.0% in October, up from 6.8% a year ago.

  Despite increases in borrowings, consumer leverage is below 2019.
  Revolving consumer credit leverage is below pre-pandemic levels on both a real and nominal basis, at 6.4% and 6.3% compared with 6.8% and 6.6%, respectively.

  Higher wages and lower airfares have not translated to RevPAR gains.
  Although consumers have discretionary income to travel - wages are up 3.2%, and airfares are down 13.2% - RevPAR continues to fall, down 2.1% Y-o-Y.

• Current Trends

  October RevPAR declined 2.1%. on a 3.2% decline in occupancy.
  RevPAR declines were driven by a 3.2% decrease in occupancy, partially offset by a 1.1% increase in ADR. Independent hotel RevPAR performance weighed on the sector during the month.

  The gap between inbound and outbound travel persists.
  Although the gap between inbound and outbound international travel narrowed to 27.7 percentage points in October, it remained near post-pandemic highs.

  TSA throughput is up 9.6% November month-to-date.
  TSA throughput has been above 2019 levels so far in November at 105%. Hotel demand in Las Vegas has also been increasing, up to 99% of 2019.

• Food for Thought

  CBRE Hotels forecasts an occupancy recover in 2028.
  With ADR and RevPAR already recovered to 2019 levels, occupancy is not expected to recover until 2028. We expect urban RevPAR will grow faster than other location types over the next several years.

  GOP profit dollars increased in September.
  Despite the expectation for continued GOP margin pressures, flat margins in September coupled with a 3.4% increase in total revenues resulted in a 3.3% increase in GOP dollars during the month.

  Short-term rentals appear to be taking share from hotels.
  Hotel demand growth declined 2.4% in October while short-term rental demand rose 15.0%, suggesting that short-term rentals are taking share from hotels.