Hotels have had a very strong summer thus far, with transient demand strong and business demand starting to pick up. This has been especially beneficial for hotels in the top 25 U.S. markets, where profit levels are much improved from the dismal pandemic performance.
The latest data from STR, CoStar’s hospitality analytics firm, shows the top 25 markets are now at 65% of year-to-date 2019 levels of gross operating profit per available room (GOPPAR) and are just seven percentage points below the 2019 year-to-date gross-operating-profit margin. Additionally, all these markets year to date are beyond 50% of 2019 levels in total revenue per available room (TRevPAR) and beyond 24% of 2019 GOPPAR levels.
The markets consistently at the top include Miami; Orange County, CA; Phoenix; Tampa; and San Diego; and transient demand is driving the high performance. All five of these top markets are beyond 2019 year-to-date TRevPAR levels and four of the five are beyond 2019 year-to-date GOPPAR levels. Miami year-to-date TRevPAR is $441, which is 128% of its 2019 year-to-date level, and Miami’s GOPPAR is $222, which is 152% of its year-to-date 2019 level. Miami’s GOP margin is 50% year to date, which is eight percentage points higher than in 2019, but labor per available room is only slightly lower than it was in 2019 year to date at $100, compared to $101.
Markets at the bottom of the list have also remained relatively consistent: San Francisco, Atlanta, Seattle, New York and Minneapolis. While these markets are at the bottom of the top 25 list, they have all been realizing month-over-month improvements. GOPPAR in New York hit $125 in May, which is the highest it has been in the past 12 months. San Francisco is at 51% of its 2019 year-to-date GOPPAR levels, and all other markets have achieved greater than 80% of 2019 levels.
STR does not expect these markets to remain at the “bottom” much longer as gateway cities, such as New York, San Francisco and Seattle, have experienced the steepest increases in hotel room demand ever since the U.S. lifted international travel restrictions. The additional boom to both gateway cities and top 25 markets will also be a major factor in revitalizing revenues and profits for these markets. This will also hopefully help to bring back large meetings and groups, as catering and banquet revenues are still down 33% year to date.
Another continuous issue for hotels is the labor shortage, as managers have had to find more flexible solutions to attract and attain employees. Labor cost per available room for the top 25 markets is only at 83% of 2019 year-to-date levels and has not surpassed 90% over the past year, which speaks to the lower employment levels rather than any cost savings. That is also shown in the labor margins, as they are higher than they were in 2019—33.4% compared to 32.7%—for these top markets even though labor costs per available room is lower than 2019.