CBRE Hotels Raises Outlook for 2023, Expects Strong Growth for San Diego Market

CBRE is raising its forecast for hotel performance in San Diego and nationally on the heels of industry gains in Q4 2022 and the expectation of a positive GDP growth in 2023.

"A shift in the drive-to leisure demand that came with the pandemic boosted San Diego as a highly desirable location," said CBRE's Executive Vice President Michael DiPrima. "That trend, along with strong government business, growing biotech and life sciences, and its convention center activity, has driven San Diego to surpass pre-pandemic hotel activity. In fact, San Diego was the sixth fastest market in the U.S. to recover, according to CBRE research."

In San Diego, revenue per available room (RevPAR) in 2023 is expected to increase to $157.26, up 6.3% year-over-year and an increase of $4.21 from CBRE’s previous forecast issued in November 2022. This is due to a 10-basis-point (bps) increase from the previous forecast. The average daily rate (ADR) is expected to increase by 3.3% to $203.43 in 2023.

Nationally, CBRE has revised its forecast for 2023 RevPAR to $97.46, up 5.8% year-over-year, and an increase of $0.43 from its previous forecast. The positive revision is predicated on a roughly 30-bps increase in expected occupancy compared to the previous forecast from November 2022. There was no change to the ADR forecast of $150.21.

In 2024, CBRE is forecasting San Diego’s RevPAR is expected to increase an additional 3.5% to $163.26. CBRE has also indicated that San Diego’s ADR will increase by 2.5% to $208.52 in 2024, increasing by 28% from pre-pandemic levels.

“In the next two years, you will see growth in the number of additional rooms booked compared to before the pandemic—this is a testament to the strong convention center recovery and longer-term positive outlook. This year, there has been over a 4% increase in rooms booked since the previous high watermark (2018) for convention attendance, and next year will be a 9% increase over rooms booked in 2018," added DiPrima.

CBRE’s baseline-scenario forecasts anticipate a 0.2% increase for full-year 2023 GDP growth and inflation of 4.7%. Given the strong correlation between GDP and RevPAR growth, changes in the economic outlook will have a direct impact on lodging industry results.

CBRE’s baseline-scenario forecasts do not contemplate an international war, a pervasive recession, or a more acute COVID variant. CBRE also produces forecasts based on upside and downside scenarios.

“The easing of travel restrictions in Japan and China, combined with continued improvements in group and independent business travel, should drive RevPAR to record levels in 2023 under our base-case scenario,” said Rachael Rothman, CBRE’s Head of Hotel Research & Data Analytics.

The U.S. economy grew at an annualized rate of 2.9% in Q4 2022, the second consecutive quarter of positive GDP growth. The uptick in economic growth led to Q4 record U.S. RevPAR of $89.27, up 16.2% year-over-year from Q4 2021. RevPAR growth was driven by a 12.1% increase in ADR and a 3.6% increase in occupancy year-over-year. Strength in the quarter was attributable to continued improvement in group business, inbound international travel, and an uptick in traditional transient business demand.

CBRE expects most 2023 RevPAR growth to occur early in the year, particularly in the first quarter. The new RevPAR forecast calls for 16.2% growth in Q1 2023, followed by increases in the 1.5% to 4.5% range over the balance of the year.

“Inflation continues to have a mixed impact on the hotel industry, bolstering top-line growth, while pressuring margins and increasing the cost of renovations and development,” said Michael Nhu, CBRE’s Global Hotels Economist. “The combination of inflationary pressures and higher interest rates are leading to slower hotel supply growth, and further strengthening the pricing power of existing hotels.”

CBRE forecasts that hotel supply will increase at a 1.0% compound annual growth rate over the next five years, below the industry’s 1.7% long-term historical average.

The February 2023 edition of Hotel Horizons for the U.S. lodging industry, 65 major markets, the six hotel chain scales and six location types can be purchased by visiting: https://pip.cbrehotels.com.