The luxury hotel sector in the U.S. has seen a significant increase in demand and room rates, while economy hotels have experienced a decline, according to data from the first five months of the year. This trend marks a departure from the usual pattern where room demand across all segments generally aligns with GDP growth.
Jan Freitag, National Director of Hospitality Analytics at CoStar Group, attributes this divergence to the different ways in which current economic pressures are affecting consumers across various income levels. He suggests that the surge in the luxury segment could be due to a “wealth effect” resulting from recent increases in stock prices and home values, which make affluent travelers more willing to spend on high-end hotels.
On the other hand, rising costs of essential items such as housing, food, and car payments may be forcing lower-income households to prioritize these expenses over discretionary travel. Freitag notes that this is particularly significant given that it follows a period of strong performance in the economy sector, partly driven by pandemic-era stimulus payments.
While these national trends are evident, there are local variations. For instance, markets that saw significant growth post-pandemic, like Tampa and Miami, are now witnessing a leveling off in demand even within the luxury segment.
Looking ahead, these trends could change if overall performance improves in the second half of the year with anticipated cuts in interest rates supporting economic growth. CBRE’s latest forecast predicts a 3% increase in revenue-per-available room on average for the rest of the year, driven by international tourists, summer travel, and limited supply growth.
However, continued economic growth is not guaranteed. The industry is also looking at potential growth catalysts for the economy segment, such as infrastructure spending. Yet, this has not materialized significantly so far.
Last year, U.S. hotel supply growth was only 0.5%, restrained by high construction costs and high interest rates in a challenging financing environment. This trend over multiple years should help support hotel rates in the medium term. However, so far this year, the demand for economy hotels has weakened at a rate that has overcome the supply constraint factor.
Source: skift.com