Hotels

Total Hotel Revenues Fell for the First Time, Further Pressuring Profits

- September 3, 2024 - princis




  • CBRE US Hotels State of the Union May 2024 Edition

CBRE US Hotels State of the Union May 2024 Edition

Key Takeaways:

  • Economy

    Q1 economic growth was slower than expected.
    1Q GDP came in at 1.6%, below CBRE’s 2.3% estimate. We expect disappointing 1Q growth will result in a downward revision to CBRE’s full-year 2024 real GDP growth forecast of 2.3%. Inflation is proving stickier than expected, resulting in a 70-bps increase in CBRE’s 4Q Fed Funds rate from 4.4% to 5.1%.

    Higher leverage and the burndown of COVID savings put consumers at risk.
    Excess Covid savings fell to essentially zero in March, from a high of $2.16 trillion in September 2021 and the personal savings rate fell to 3.2%, below the long-term average of 6.6%. Consumer leverage remains below pre-pandemic levels but has increased 0.24 percentage points since 1Q23.

    The 82-bps contraction in borrowing rates drove a 3x increase in loan size.
    The average hotel CMBS loan size increased from $15.3 million in March 2023 to $48.9 million in March 2024, however the number of loans originated fell from 28 to 10. Credit spreads contracted ~140 bps y/y partially offsetting the higher base rates.

  • Current Trends

    March RevPAR decline was steeper, partly because of the shift in Easter.
    March RevPAR declined 4.1%, owing to a 1.1% ADR decline and a 3.1% occupancy decline. Surprisingly, despite the benefits of the Easter shift, Resort RevPAR continued to decline in March, dropping 5.3%. Independents continued to weaken as trends continued to normalize to pre-pandemic levels.

    Brand.com continued to take share from other channels during the quarter.
    Brand.com market share increased 350bps in the quarter and segment demand hit 120% of 2019’s levels. Corporate and Group continued to improve, with demand nearly reaching 2019’s levels.

    Total hotel revenues fell for the first time, further pressing profits.
    Total hotel revenues per available room fell 0.2% in February, the first decline since the post-pandemic recovery. Top line declines and a 0.8 percentage point contraction in margins resulted in a 4.8% decrease in GOP.

  • Food for Thought

    Easter shift drove short-term rental outperformance in March.
    Short-term rental demand rose 15.2%, outpacing the 2.5% decline in hotel demand. This is no surprise as STRs are essentially 100% leisure, and they benefitted from the Easter shift. Cruise lines and short-term rentals continue to take share from traditional hotels, reaching 113% and 142% of 2019 levels, respectively in Q1.

    Outbound international travel continues to outperform inbound.
    Outbound international travel was 117% of 2019’s level in March compared to inbound visitation of 94%. Inbound visitation to both the East and West Coast hit post-pandemic highs in March as inbound visitation from Asia continued to increase, hitting 74% of 2019 in March.

    TSA throughput increased 5.1% year-over-year in April.
    TSA throughput reached 106% of 2019 levels during the month. Despite continued strength in passenger volumes, searches for paid and redeemed travel remained soft in April and Airport hotel RevPAR has lagged at down 1.5% in Q1.

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