CBRE Hotels Raises Outlook for Second Half of 2022, Expects Continued Growth in 2023

CBRE is raising its forecast for hotel performance in Seattle and nationally on the heels of industry gains in Q2 2022 and the expectation of slightly positive GDP growth in 2023.

In Seattle, CBRE revised its forecast for 2022 to a gain in revenue per available room (RevPAR) of 58.3 percent, up from the previous projection of 41.2 percent. The revision is predicated on the expected average daily rate (ADR) rising 28.6 percent, up from an anticipated 22.7 percent in the last forecast, issued May 2022. It also assumes a 23.9 percent increase in demand, up from 16.4 percent in May.

CBRE has also raised its forecast for Seattle hotel occupancy. In May, the projection was for occupancy to rise 15.0 percent in 2022, hitting 60.0 percent. Per the new forecast, occupancy is anticipated to rise 23.1 percent this year, reaching 64.2 percent occupancy in Seattle.

“While still not back to 2019 levels, Seattle’s hotel sector had a good summer thanks in part to a very strong cruise season. Pent-up demand is expected to result in a historic number of cruise passengers by the end of the season in late October. Additionally, meeting and group demand is picking up at the Seattle Convention Center, while concerts and professional sporting events are drawing people to the city,” said Alan Jutte, vice president with CBRE Hotels Advisory.

Mr. Jutte added, “Properties downtown continue to face headwinds around homelessness and crime, although perceptions of both are improving. One lingering challenge is labor, particularly in the food and beverage sector. Many hotels are forced to offer scaled-down menus or close their restaurants certain days of the week as they don’t have adequate staffing. Some operators have turned to online staffing apps to supplement employment, but the quality of labor is inconsistent.”

Looking ahead to 2023, CBRE projects occupancy, ADR, RevPAR and demand to continue to rise in Seattle, albeit at a slower pace than 2022. Occupancy is anticipated to increase 7.4 percent (reaching 68.9 percent), ADR to rise 7.2 percent, RevPAR to increase 15.2 percent, and demand to improve 9.7 percent.

Nationally, U.S. hotel industry performance was stronger than expected in Q2 despite a decline in GDP and the highest inflation in more than 40 years. Strength in the quarter was the result of continued improvements in group business, inbound international travel, and what may have been a peak in leisure travel this cycle.

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.

“As we progress through the third quarter, it is worth noting that the brisk pace of demand recovery has begun to slow. We are seeing a pullback in ADRs in select record-setting markets,” said Rachael Rothman, CBRE’s Head of Hotel Research & Data Analytics. “Despite the slowing pace of growth, we expect the continued recovery in travel demand to be driven by incremental group and inbound international travel, followed by a modest uptick in transient business.”

Inflation continues to bolster top-line growth, but it is also a headwind to margin expansion given rising wages, utilities, food and beverage costs, insurance and capital expenditure (CapEx) increases. Historically, luxury hotels have had the greatest ability to increase room rates to offset inflation.

Longer term, muted supply growth will bolster top-line growth. High construction material prices, including lumber, steel and labor, make the development of new projects too expensive in some cases. CBRE forecasts that the national hotel supply will increase at a 1.1 percent compound annual growth rate over the next five years, below the industry’s 1.8 percent long-term historical average.

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The August 2022 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.