CBRE raises 2023 industry outlook again

CBRE has raised its forecast again for hotel performance this year, as stronger-than-expected demand and more modest supply growth drive occupancy gains.

CBRE has revised its forecast for 2023 RevPAR to $97.89, up 6% year-over-year (YOY), and an increase of 43 cents from its previous forecast. The positive revision is predicated on a 65-basis-point (bps) increase in expected occupancy compared with the previous forecast issued in February. ADR is now expected to increase by 3.7% in 2023, down from the previous forecast of 4.2%, owing to slightly lower inflation expectations and a bigger mix of group travel and shoulder-period (between peak season and offseason) demand, which are often at a lower rate.

The company’s baseline-scenario forecast anticipates 0.8% average GDP growth and average inflation of 4.6% in 2023. Given the strong correlation between GDP and RevPAR growth, changes in the economic outlook will directly impact lodging industry performance.

“We are already starting to see signs that the easing of travel restrictions in Japan and China, combined with continued improvements in group and independent business demand, are bolstering demand heading into the heavy summer travel season,” said Rachael Rothman, head of hotel research & data analytics, CBRE.

The U.S. economy grew at an annualized rate of 1.1% in Q1 2023, the third consecutive quarter of positive GDP growth. The uptick in economic growth led to a Q1-record U.S. RevPAR of $88.33, up 15.5% YOY from Q1 2022. RevPAR growth was driven by a 9.6% increase in ADR and a 3.1% increase in occupancy YOY. Strength in the quarter was attributable to continued improvement in group business, inbound international travel and an uptick in traditional transient business demand.

Given the impact that COVID restrictions had on hotel fundamentals in Q1 2022 and an anticipated deceleration in GDP growth in the second half of 2023, CBRE expects Q1 2023 to be the high point of the year for RevPAR growth. The growth rate is expected to decelerate to the 4% to 5% range over the next few months before further decelerating to the 2% to 3% range in Q4 2023.

“Despite the moderating pace of GDP growth, several travel-specific tailwinds coupled with employment growth and wage increases should result in another record year for RevPAR in 2023,” said Michael Nhu, senior economist/head of global hotels forecasting, CBRE. “The combination of inflationary pressures and higher interest rates are leading to slower hotel supply growth and further strengthening the pricing power of existing hotels.”

CBRE forecasts that hotel supply will increase at a 1% compound annual growth rate over the next five years, below the industry’s 1.6% long-term historical average.