Short-Term Rentals Continue Trend of Taking Market Share from Hotels - CBRE U.S. Hotels State of the Union March 2024 Edition

CBRE U.S. Hotels State of the Union March 2024 Edition

Key Takeaways:

• Economy

  While unemployment remains below 4%, employment growth has been slowing.
  As job openings cool so too has employment growth as national employment growth slowed to 0.6% and hotel employment growth slowed to 2.9% in January. Hotel job openings have also slowed to 15.4 down from a peak of 28.9 in December 2022.

  Wage growth outpaced inflation, but RevPAR contracted again in January.
  Wage growth above inflation, declining airfares and low consumer leverage should be a tailwinds for hotel RevPAR growth; however, these positive economic indicators have not resulted in RevPAR gains over the past several months.

  CMBS credit spreads narrowed in January with rates up slightly.
  January hotel CMBS borrowing rates were 6.9%, up slightly from 6.8% a year ago, and spreads were 280 bps, down from 325 bps last year. Loan count increased from 8 to 11, and volume rose from $0.1 bil. to $0.3 bil. compared with a year ago.

• Current Trends

  Short-term rentals continue to take market share.
  Hotel demand fell 2.0% in January, while short-term rental demand rose 1.3%. Despite taking share from hotels, increasing supply has created occupancy headwinds for short term rentals causing RevPAR to contract 6.6%.

  The spread narrowed between inbound and outbound international travel.
  Outbound international travel was 112% of 2019’s level in January compared to inbound visitation of 83%. The persistent spread has led to occupancy headwinds, particularly in some West Coast markets.

  TSA throughput reached 110% of 2019 in February. TSA throughput increased 5.7% year-over-year in February.
  Despite increases in passenger volumes, searches for paid and redemption travel remained soft in January and hotel RevPAR remained relatively flat.

• Food for Thought

  CBRE Hotels Research reiterates RevPAR growth of 3.0% for 2024.
  2024 would mark the 4th consecutive year of positive RevPAR growth this cycle with RevPAR forecast to reach 113.2% of 2019’s level on a nominal basis. Given the continuing recovery of group and international travel, we expect growth to be strongest at urban and airport locations in 2024.

  GOP margins declined in December as total revenue growth slowed to 0.9%.
  December’s total revenue growth of 0.9% failed to offset the 90-basis point contraction in margins, causing a 2.4% decrease in GOP dollars as labor costs from rising wages continued to pressure operating profit.

  January RevPAR growth was relatively flat, down 0.1%.
  A 2.7% increase in ADR almost totally offset a 2.7% decrease in occupancy. RevPAR growth for upper-price tier and Upscale hotels was positive. Urban and airport hotels posted RevPAR gains during the month, up 5.0% and 2.2%, respectively.

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