AZ Big Media Why experts expect Phoenix hotels to surpass pre-pandemic levels

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


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Phoenix hotels

In Phoenix, the average daily rate (ADR) is expected to increase 23.3 percent to $161.06 in 2022 and is forecasted to increase 3.2 percent to $166.29 in 2023, passing pre-pandemic levels and up from CBRE’s previous 2022 and 2023 projections of $154.46 and $161.47, respectively.

Revenue per available room (RevPAR) is expected to increase 35.6 percent to $109.31 in 2022 and is also expected to pass pre-pandemic levels with a 7 percent increase to $116.93 in 2023. This forecast is an increase from the original 2022 and 2023 projections of $100.32 and $110.81, respectively.

Occupancy is expected to increase 9.9 percent in 2022 to 67.9 percent, up from the previous 2022 forecast of 64.9 percent. Occupancy is also expected to approach pre-pandemic levels in 2023 with a 3.6 percent increase to 70.3 percent.

“The Phoenix lodging market is on track to finish 2022 stronger than CBRE had forecasted earlier in the year due to better than anticipated performance in Q2, with ADR and RevPAR expected to surpass pre-pandemic levels this year,” said Branden T. White, MRICS, ASA, Vice President in the West Division of CBRE Hotels. “The pace of growth is projected to slow considerably in 2023; however, as demand growth continues to outpace supply growth over the near term, occupancy is anticipated to recover to pre-pandemic levels in 2024, one year sooner than the national forecast.”

Nationally

CBRE has revised its forecast for the second half of 2022 to a gain in RevPAR of 14.7 percent year-over-year, up from the previous projection of 13.1 percent year-over-year. The revision is predicated on a 3.5 percentage point increase in expected ADR growth compared to the previous forecast issued in May 2022, as well as a 2.2 percentage point reduction in CBRE’s demand forecast.

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.

Q2 RevPAR reached $98.84, up 38 percent year over-year, and an all-time quarterly high at 106 percent of 2019’s level. RevPAR growth was driven mainly by ADR (up 25.5 percent), followed by occupancy (up 9.9 percent), demonstrating travelers’ limited price sensitivity in many peak demand markets.

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 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.

Why experts expect Phoenix hotels to surpass pre-pandemic levels