Lodging Market Should Recover Fully by 2023
Fort Worth Hotels Continue to Recover More Quickly than Dallas as Leisure Tourism Outperforms Corporate Travel
June 7, 2022
In Dallas, hotel rates are on pace for a full recovery in 2022 with average daily rates (ADR) anticipated to be $116.92—a 17.4% increase from 2021. Revenue per average room (RevPAR) rates ($71.49 in 2022 vs. $78.64 in 2019) are expected to fully recover in 2023 while occupancy rates (61.1% in 2022 vs. 68.4% in 2019) should recover in 2024.
Alternatively, Fort Worth hotels have seen a faster post-pandemic recovery. ADR has already surpassed 2019 levels at $102.88 as of March 2022. RevPAR is expected to hit that milestone by the end of 2022.
“Dallas is a market that is dependent on large group or corporate travel, so its hotel recovery is more in line with national trends,” said Kevin Donahue, first vice president with CBRE’s Valuation & Advisory Services group. “It’s important to factor in that this type of tourism is planned six to 12 months ahead of time, so we are still seeing the effects of the omicron variant from last winter. Now that companies are more confident in planning events in the next year, hotels will benefit from the increase in travel.”
Fort Worth’s quicker recovery can be attributed to several factors, according to Mr. Donahue. “Fort Worth is less reliant on corporate and group travel, so the hotel market was less affected by new variants. There is a strong tourism industry with attractions like the Stock Yards and different sporting arenas including AT&T Stadium and Global Life Field in Arlington.”
Nationally, CBRE’s forecasts call for a full recovery in average daily rate (ADR) in 2022, in demand and revenue per available room (RevPAR) in 2023.
Despite headwinds from the Omicron variant, Q1 RevPAR reached $72.20, up 61 percent from year earlier. RevPAR growth was driven by a 39 percent increase in ADR)and a 16 percent increase in occupancy.
Trends strengthened over the quarter as Omicron concerns faded and spring break drove demand. In Q1, ADR was 5 percent ahead of 2019’s levels, marking the third consecutive quarter in which levels exceed the same period in 2019. These rising rates demonstrate that travelers aren’t price-sensitive in many peak-demand markets.
Since year-end 2021, several factors, such as the Russia-Ukraine war, high gas prices and the 19 percent pullback in the S&P 500 have increased the risk of a potential slowdown. However, for now, CBRE Econometric Advisors (CBRE EA) continues to forecast positive GDP and employment growth and continued elevated Consumer Price Index (CPI) through 2023.
“To date, there has been no sign that the more than 50 percent increase in gas prices and the stock market’s hovering near bear-market territory are dampening hotel demand,” said Rachael Rothman, CBRE’s Head of Hotel Research & Data Analytics.
“However, in the past, a steep decline in the S&P 500 and high gas prices have often caused RevPAR growth to decline, which raises the specter of a pullback in RevPAR later this year,” she said. “Despite this possibility, our outlook remains that the market will continue to recover.”
CBRE Hotels Research continues to expect better relative performance in drive-to leisure destinations, particularly among high-end properties where consumers are less price sensitive and the impact of inflation may be less severe. Higher gas prices, food costs and mortgage rates could dissuade budget-minded consumers who frequent interstate hotels from making travel plans.
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 pricing power.
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 cost prohibitive. CBRE forecasts that supply will increase at a 1.2 percent compound annual growth rate over the next five years, below the industry’s 1.8 percent long-term historical average.
CBRE Hotels Research’s base case scenario forecasts do not contemplate a larger-scale war, a recession, nor a more acute COVID variant. All clients are encouraged to review the scenario analysis for a more comprehensive view of the range of potential outcomes.
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The May 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.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.