At the onset of 2023, the U.S. hotel industry sought signs of normalization. With forecasters staring down a markedly different hospitality landscape from before the pandemic and an economy defined by continued uncertainty, many hoteliers across the U.S. are still looking for signs the tide has turned. Following a year that clarified the strength of leisure travel and reaffirmed hoteliers’ investments in technology, and saw operators push some of the highest rates in recent memory, industry experts remain divided on what “normal” means today despite reasons for hope and optimism.
On paper, the industry has surged back to life following the pandemic. Jan D. Freitag, National Director, Hospitality Analytics, CoStar Group, said substantial Q1 2023 RevPAR performance may be skewed due to the negative impact from the Omicron variant, which was prevalent at the same time the year prior. However, even after controlling for those figures, he said the industry grew at a “healthy” pace throughout the rest of 2023—meeting and sometimes exceeding expectations. All things considered, RevPAR for the first 10 months of 2023 was up 5.5%, and the group foresees a 4.8% increase throughout 2024. The challenge, now, is preparing for the unforeseen.
“The economy is slowing a little bit heading into 2024, and as a result, RevPAR growth is likely slowing as well,” Freitag said. He suggested RevPAR in the new year will be primarily driven by the industry’s ability to grow room rates, which often mirror the economy’s rate of inflation, adding, “The problem is, if hotels continue to drive room rates at the same level as inflation, operators may struggle to attain beneficial levels of growth. We can see a scenario, in this case, where hoteliers’ margins continue to be squeezed in 2024.”
While hotel rates held in 2023, occupancy levels continued to slip. STR data shows an average of 64.8% occupancy for the first 10 months of 2023. Freitag suggests this figure is heavily supported by leisure travel, rounded out by some surprising activity from group business. “In October 2023, hotels sold more group rooms than in the same period during 2019, speaking to the health of the convention and meetings market,” he said. “We expect these trends to continue, especially because corporate and transient travel has yet to return fully.”
According to Rachael Rothman, head of hotels research & data analytics, CBRE Hotels, 2023 stabilized demand by chain scale and location type as room nights sold converged. She highlighted success stories such as resort and interstate locations as the main segments that experienced growth last year, and gradual improvements in urban and luxury properties, which are expected to continue in 2024.
From Rothman’s perspective, the most pressing trend that emerged last year was a renewed push for direct bookings. According to CBRE data, as of Q3 2023, Brand.com demand and RevPAR were up 112% and 125% of pre-pandemic levels, respectively. This gives hoteliers a clear path to grow revenue by reducing third-party contributions in 2024 on the back of more direct bookings, particularly amid slowing RevPAR growth as ADRs normalize. The key element, from her perspective, has been the relative health of consumer spending despite high prices and an unwavering desire for travel despite economic headwinds.
“Consumers have continued to spend on travel as wage growth has outpaced increases in domestic RevPAR and airfares,” Rothman said. “The data shows that travelers are still spending on travel as short-term rental demand has reached 131% of 2019 levels, and outbound international travel reached 113% of 2019 levels—and RevPAR has appreciated even more. On the other hand, demand is just 97% of 2019 levels.”
CBRE data shows suburban and urban market booking demand has converged, but the difference lies in RevPAR, where suburban markets continue to lag. However, the story becomes more disparate when comparing RevPAR across urban, airport and resort markets. While urban and resort markets are recording roughly 3% higher RevPAR compared to 2019, consistent leisure travel has propelled resort hotels to command 18% higher RevPAR vs. 2019.
This level of growth is unsustainable for resort properties in the long term, and these markets are close to maturing, considering their high rates. As a result, urban hotel RevPAR is expected to grow the fastest between now and 2027, where CBRE anticipates it will increase 5.2% compared to 3.4% for the entirety of the U.S.—and 2.4% for resorts.
Additionally, RevPAR is actually down 2.1% year-over-year (YOY) despite a 13.2% reduction in airfares, all while the gap between inbound and outbound travel widens. Total overseas inbound travel was just 85% of 2019’s highs, while outbound travel is up 113% over that period. This has led to increased competition in interstate markets as guests shop around to capitalize on deals related to drive-up travel.
“The impact of rising outbound travel is not to be underestimated,” said Mark Lomanno, partner/senior advisor, Kalibri Labs. “Philadelphia residents typically plan to visit New Jersey in the summer, but last year, rising consumer prices and unpredictability drove many travelers to book European trips instead for the first time in many years. This has impacted multiple chain scales, from midscale to luxury pricing.”
Mark Lomanno Kalibri Labs
Lomanno is unsure if travel trends will favor inbound bookings in 2024, but it is a factor he said forecasters are all paying close attention to. “We anticipate RevPAR growth in 2024 will range between 2% and 4%, reflective of historical norms,” he said. “We don’t anticipate a situation like in 2022 or 2023 where hotels were able to command significant RevPAR increases. And if consumers cease traveling at the current pace they have, that will also be a trend to watch.”
Analysts universally pushed back on the notion that the rising cost of living, while deleterious to consumer spending once on the road, could potentially become a deterrent to new bookings throughout 2024. According to the U.S. Bureau of Labor Statistics, consumer prices were up 3.7% from September 2022 to September 2023. Transportation and food were included among the items that most increased in cost throughout this period, and yet travelers remain undeterred.
Rising prices in 2023 also threw hotel purchasing into tumult. According to Chip Rogers, president/CEO, American Hotel & Lodging Association, inflation has thankfully not had a significant negative impact on travel demand but has posed new operational challenges for hotels. This, coupled with a continued labor shortage, has stifled operators’ potential throughout 2023. Overcoming labor challenges has been a primary call to action from the AHLA and its more than 30,000 members.
“What we’re seeing is a new era in operations—one where challenges such as staffing shortages and inflation have replaced COVID as hoteliers’ top operational concerns,” Rogers said. “Consider the fact that as of October, the U.S. had 8.7 million job openings, but only 6.5 million unemployed people to fill them, according to the Bureau of Labor Statistics.”
Labor has remained a consistent challenge in hospitality, and the issue is continuing to evolve today. In June 2023, the AHLA revealed statistics showing 82% of surveyed hotels reported staffing shortages, even as 75% of hotel respondents said they were increasing wages and a further 64% said they were offering expanded flexibility for hourly workers.
“AHLA is urging Congress to take a number of steps to address this problem, such as establishing an H-2B returning worker exemption, passing the Asylum Seeker Work Authorization Act and passing the H-2 Improvements to Relieve Employers (HIRE) Act,” Rogers said.
Chip Rogers AHLA
The cautious optimism of 2023 remains in 2024, particularly amid factors including high federal interest rates (currently 5.5%), the gradual return of corporate travel, political unrest abroad and a U.S. election year. What many hoteliers and analysts are relying on today is the strength of leisure demand and the desire to hit the road despite uncertainty.
Leisure demand
As reliant on leisure travel as the industry has been, there is always room for more. Looking from the top down, Lomanno said the industry will be more reliant on leisure travel in the new year as the recent economic recovery has most significantly impacted consumer travel, not corporate interests. In 2023, properties with amenities were the most appealing to travelers paying high rates and wanting to get their money’s worth. This demand has created operational challenges for hotels that feel squeezed between rising prices, unrelenting guest expectations and a longstanding lack of available workers.
“From a pricing standpoint, room rates went gangbusters all year until the end, with extremely aggressive pricing across all hotel chain scales and little resistance from leisure travelers,” Lomanno said. “From a certain perspective, this trend can be attributed to ‘revenge travel,’ or the desire to catch up on deferred plans regardless of the cost, but it’s unsustainable. Our industry is looking at a period of pricing stabilization in 2024.”
Lomanno believes hotels should hold on to the rush of leisure travel for as long as possible in 2024. From his perspective, hoteliers who are pining for lost corporate bookings thanks to their consistency and the need to fill a lost niche are missing out on greater returns promised by leisure and are letting the opportunity pass them by.
“When the industry makes a shift from corporate to leisure business, it’s not an even trade,” he said. “Leisure guests stay longer and spend more on property.”
Anecdotally, Lomanno said hotel stays have grown shorter over the past year and a half due to inflationary pressures, but leisure bookings are still rolling in. CBRE data shows demand is typically higher for rooms in the upper-midscale segment, driven partially by high rates across all segments. These figures lend credence to trends showing guests continue to be driven by “revenge travel” and are less sensitive to price today.
In fact, analysts rebuffed considerations that rising costs may deter leisure bookings despite corporate travel deferring them. JP Ford, SVP/director, global business development, Lodging Econometrics said leisure travel should remain strong into 2024, while corporate travel may be a bit soft early in 2024 but should accelerate in the second half or sooner. “We anticipate leisure travelers will travel with the same zeal in 2024 as they did last year, if not more,” he said. “That demand segment remains healthy.”
Return to the office
There has been mounting pressure on American workers to return to the office and break from remote working trends that were adopted during the pandemic, and this push is finding fuel from a variety of sources. In-person work has been directly correlated to greater efficiency and accountability. Still, owners of corporate real estate also wish to generate more revenue on-site, which is being stifled by current work-from-home trends. Increasing corporate collaboration also leads to more consistent corporate travel, and hospitality has been anxiously awaiting its return.
According to Freitag, operators should get used to waiting.
“I’m not sure we as a working culture will ever go back to the office on Fridays,” he said. “It’s clear there is a current push for three days in the office each week. This trend implies Tuesday through Thursday are now peak office days, and therefore we now have a new peak travel period. In some ways, this trend compresses five travel days into just three, and hoteliers are considering the impact of this in 2024 and beyond.”
Still, some will never go back to the office. That doesn’t mean these workers will have no need for travel. However, their priorities and behaviors while traveling have simply adjusted. Remote working has created more nomad travelers, those who are willing to work on the road, or “bleisure” travelers who blend work and play in between professional obligations. These workers still enjoy connecting with their team at regular intervals each year. Their offices are becoming hotel guestrooms, and their meeting space is the hotel ballroom.
According to data from CBRE, office vacancy continues to rise, and office attendance has stalled at roughly 50% of pre-pandemic levels in urban markets. Acceptance of calls to return to the office varies by market, with 58% back working on-site in Houston compared to just 39% in San Francisco. Despite this, business travel has been on the uptick all year, with hotel global distribution system data showing that demand ending Q3 2023 was roughly 98% of 2019.
“Office vacancy and office attendance likely have some impact on business travel in certain industries, but for many industries, business travel can be untethered from a physical office location,” Rothman said.
Despite the uneven acceptance of return-to-office trends, the policy is likely to gain steam over the next few years. Rogers said the industry has significantly benefited from the creation of new hotel guests, such as digital nomads, but feels empty office buildings in urban centers have a negative impact on business travel.
“[Today,] there are fewer people in the office to visit on a business trip, and remote workers are less likely to travel for work if they’re hunkered down at home,” he said. “We are, however, seeing a sustained push in the private and public sectors to get more people back in the office more consistently, and this is a positive step for hotels and all other urban businesses.”
(Still) holding debt
Federal interest rates remain high, and throughout 2023 they only went up. Today, many throughout the industry feel paralyzed due to the cost of debt, but should they? According to industry analysts, today’s market is neither foreign nor eternal, but hoteliers are forgiven if it feels unfamiliar. Owners, investors and developers have benefited from an extended period of low interest rates over the past few business cycles, and until inflation is controlled, they must once again acclimate to an inflexible Fed unwilling to signal which way they are likely to go—or when.
According to Ford, completing hotel PIPs and renovations are likely to remain the main goal for current owners in 2024, provided they have the capital to invest.
“Those out there with access to debt at decent rates are still building,” he said. “There is a certain segment of developers who understand they are working with higher interest rates, but they are in this business to build, and they will adjust their plans and budgets along the way to see a development through. We’ve reached a point where interest rates have been so high for so long, investors are coping with the current state of affairs and finding ways to make hotel developments happen—but it’s not easy. Look for new hotel openings in 2024 to be centered mostly around upscale and upper-midscale hotels.”
Of course, if the Fed does deign itself to lower interest rates, this would serve as a starting gun to kick off a new transactional marketplace. Many hotels have been struggling under the weight of the property improvement plan or debt refinance obligations and are looking for a way out. For some, that may mean a downmarket sale, but to do so the market must be on their side.
“In Q3 2023, we saw roughly $6.2 billion in hotel assets change hands, which is down 45% from a year ago,” Freitag said. “Will it increase when looking back at Q4, or in Q1 2024? If hoteliers know what their debt costs are, then possibly. If the Fed is done raising rates, then absolutely it will be a catalyst for new transactions.”
The big holdup, from the investor’s perspective, is that the expectations for buyers and sellers today are not in alignment. Sellers have been holding their assets, accruing value for their planned windfall, and looking for big spenders in an economy of deal seekers. It’s a race to the bottom, and no one wants to win.
“Sellers want far more for their assets than the market is willing to spend today,” Lomanno said. “There are many reasons for this disconnect between [both groups], but the result is that there were hardly any transactions in 2023 compared to expectations” heading into the year.
According to Lomanno, this issue is not unique to hotels. Due to the aforementioned challenges associated with remote working, there is also a significant amount of commercial real estate office debt coming due in 2024 and some concerns as to what happens when large swaths of it are made available on the market.
“Sellers consider hotels to be safe real estate,” Lomanno said. “Office space, by comparison, is an unsafe investment and will require a significant discount to find a buyer. Hotels don’t have that concern, but sellers must understand that while there is money available to buy real estate the math is not adding up for buyers today.”
It feels like so long ago the industry was concerned about new supply, but today it’s the planning stages that are overburdened. Owners are working hard to secure land and branded partnerships but are encountering difficulty finding financing. The debt they do find is expensive, and in response, some have resorted to stretching out the process, waiting for the Fed to move. Regardless of these factors, Freitag said the market is itching to sell if the Fed plays ball.
“Even if they cut a little bit, we’re cooking with gas,” he said.
Tighter margins, more competition
One challenge facing hotels in 2024 is not a new issue, but rather that the market is maturing during a time when most hoteliers are still hoping to rebuild their business.
According to data from CBRE, cruise lines and alternative lodging have been slower than hotels to benefit from the economic recovery, but that tide could be turning. High room rates eventually cause consumers to diversify their spending, and similarly, significant destinations such as Las Vegas are once again becoming prominent draws capable of cannibalizing group business, creating headwinds in group demand across other destination markets.
Looking at the data, short-term rental demand in 2023 was 31% higher than 2019 levels, while cruise lines were just 1% higher over the same period. While short-term rentals have remained competitive with hotels, should cruise’s popularity continue to grow consistently, it will reclaim its share of travelers from the hotel and short-term rental market. These, and other factors related to increased competition, could suppress gains in hospitality occupancy or rate.
“We expect margins to continue to be under pressure in 2024 as a result of more modest RevPAR gains, wage increases and rising food & beverage and insurance costs,” Rothman said.
This is the point in recovery where a hotel’s investment and operations strategy is truly tested. According to Freitag, the desire to adopt new technology has been refreshing and beneficial for the industry, but it’s far from a silver bullet. The answer continues to lie in interpersonal interactions and service, which can only be aided by technology.
“There is a continued push for automation across hospitality where things can be automated, but finding the right person and training them for the right position is still our industry’s main focus,” Freitag said. “We will continue to see more technology and interactivity take place in the margins of hotel operations. ChatGPT was launched in 2022, but we are just now seeing it deployed in ways that benefit business and our industry.”
By segment: Economy
While economy hotels emerged from the COVID pandemic supercharged with activity, the last year of recovery has been challenging for the segment. Economy hotels were among the least impacted by the pandemic in terms of occupancy and rate, but now that there is more competition for consumer dollars, these hotels are anticipating a challenging 2024. STR data shows economy hotels only reached above 60% occupancy two months out of the first 10 in 2023. The recession has impacted budget-conscious travelers, and analysts noted economy hotels are closing doors at a rate that has somewhat obscured the segment’s challenges. However, for those on the ground floor operating a busy economy property in the right location, the story can seem a little different.
Mike Johnson, president, Management Consultants Inc., and manager of the Red Lion Ridgewater Inn & Suites Polson in Polson, MT, said he began 2023 with a feeling of pessimism toward the year ahead, but the hotel’s performance exceeded all forecasts despite not exceeding gains of the past two years. Johnson attributes some of this success to his property’s location but said other consumer trends assisted with solid returns.
“Operators across our industry held rates even if demand didn’t dictate it,” he said. “For the first time in decades, we didn’t see a race to the bottom. Rates held even though occupancy dipped, which allowed us to achieve higher revenue than what people forecasted. Our strength in 2023 was very rooted in rates.”
The Red Lion Ridgewater is located along the local interstate, allowing the hotel to benefit from strong trends in both drive-to destinations and transient leisure travel. Johnson accounts for half of the hotel’s capacity to these transient bookings, which remained persistent throughout last year. He anticipates it will maintain at this pace this year.
According to Johnson, the cost of operating in 2023 will put significant pressure on economy hotels’ bottom line, which is already contributing to slimmer profit margins in a budget-constrained space. He noted everything from food, guest acquisitions, labor and even room keys have gone up in cost, which has resulted in higher rates across the board.
“Rates held in 2023, but economy hotels are now starting to see rate fatigue from guests,” Johnson said. “I’m optimistic rates will continue to go up, but I’m sure I will see cost increases throughout 2024.”
With rates so close across chain scales today, a key differentiator in the economy segment is service delivery, consistency and value delivered per stay. Johnson challenged hoteliers in his segment to create an environment that entices guests to spend time on the property, not simply for low rates. To that end, Americas Best Value Inn was recently named the economy brand with the No. 1 highest guest satisfaction in J.D. Power’s 2024 North America Hotel Guest Satisfaction Index for the first time in its history. Rob Schaller, GM, Americas Best Value Inn New Paltz in New Paltz, NY, said he is proud to be part of a brand that accomplished such a feat during this stage in hospitality’s recovery.
“People have higher expectations today, and they deserve to be satisfied,” he said. “Achieving high guest satisfaction in an economy hotel trickles down to many other aspects of the business and makes other challenges your hotel faces easier to overcome. Attaining high guest satisfaction falls on independent property owners, and we take pride in the accomplishment.”
When considering the pressures facing economy hotels today, Schaller believes the current market to be an opportunity to make further adjustments as the industry recovers from COVID, both in terms of generating revenue and controlling costs. “Our hotels are becoming more conscientious of updating old strategies and approaches to business, particularly regarding technology aiding operations,” he said. “Switching to digital processes has provided us with significant operating advantages.”
One question hanging over both operators’ heads in 2024 is just how well their hotels will be able to compete with rates as compressed as they are. This circumstance is unique to economy hotels, as there is only so far they are willing to drop rates before it negatively impacts their business.
“The challenge for us is that our brand, and economy hotels in general, stand for value,” Schaller said. “Rates can only go up so much, and we want to continue providing great value. What we need is for occupancy to catch up.”
Midscale
Midscale hotels were able to maintain and even push rates throughout 2023, attaining ADR of $123.29 for the first 10 months of the year, a full $10 higher than the 2022 average. Some midscale properties struggled amidst a lack of corporate and transient business travel, but despite these core audiences needing more presence in 2023, midscale hotels also benefited from their strong value proposition and favorable competitive position considering high rates in the economy and upper-midscale segments. These trends contributed toward normalization in midscale business activity, though according to Mehul Patel, managing partner/CEO, NewcrestImage, this was heavily dependent on market and location.
Mehul Patel NewcrestImage
“Every market we operate in was on a different path to recovery this year,” Patel said. “Some midscale markets saw excellent weekend bookings but were slow to attract bookings from Monday to Wednesday. This was especially true for hotels with a reliance on corporate bookings.”
However, even without corporate travel to fill in the gaps, Patel’s midscale properties performed well for the year. His operators turned to sports, leisure and even group bookings to cover for a lack of business travel. “Last year, the entire lodging segment was able to drive RevPAR,” he said. “Even without moving the needle on occupancy, they were able to adjust rates. What we saw over the past nine months is that hoteliers have been able to maintain rates even as they lose occupancy. That is a different market than what we are used to.”
Listening to Patel, one could be convinced the industry has plenty of runway to go to push rates and drive occupancy at the same time. He anticipates demand will increase by 1% at most in 2024 but says there is no chance it will drop.
“Our industry survived the worst time to be in the business, COVID, and if you can make it through that you can survive anything,” he said. “Looking forward across our portfolio, properties are maintaining rates. We don’t foresee any significant supply additions taking place over the next three years, certainly not the 3% YOY increase we have been seeing. It’s a good time to be in the hospitality industry, and what we see has us feeling optimistic.”
Patel is adamant that 2024 can be a deal-making year if hoteliers are persistent enough. NewcrestImage spent 2023 buying close to 100 hotels and sold most of them despite the challenge of finding debt, locating buyers and assisting them in their debt-acquisition process. After all, while he is confident Federal interest rates will drop in 2024, no one knows when.
“We are buying at 8.75%, and even if the Fed cuts rates, they will still be at 8% or above,” Patel said. “Business owners should be cautious with their expectations. Interest rates could be cut early, or they could hold for most of the year. Timing the market takes too much energy. If there is a good deal, we focus our time and energy on that to see it through.”
Upper-midscale
Upper-midscale hotels began 2023 with an uncertain outlook but recorded respectable performances throughout the year.
“If we spoke at the beginning of 2023, I would have told you I was cautiously optimistic, but looking back, I would say we had a good year,” said Justin Jabara, president, Meyer Jabara Hotels. “Certain markets actually saw a pullback in leisure, which was a surprise. However, markets with highs that felt artificially inflated normalized, such as Florida and some locations in New Hampshire, but other markets we thought would have come back by now are recovering slower than expected.”
Justin Jabara Meyer Jabara Hotels
This was the reality of upper-midscale recovery in 2023, where total RevPAR was up 6.3% YOY for October. This activity has given upper-midscale hotels a reason to celebrate, but these properties remain sandwiched between high operating costs and the need to continue exceeding guest expectations.
On one hand, Jabara said issues that existed in 2021 and 2022 continue to persist under a new guise. Last year, he said, the industry was talking about labor with the concern that the industry was not attracting enough associates. Today, the discussion focuses on whether hospitality is attracting the right associates and if they’ll stick around.
“Our industry needs quality associates,” Jabara said. “That front desk agent who can deliver a quality experience is hard to find today. Having a skilled, reliable staff is a game changer today. It determines whether your property can maintain profitability or not.”
We are past the time when operators paid lip service to labor concerns, and it’s time to walk the walk. Meyer Jabara was able to maintain turnover of 24% at the line level and secured record-high levels of worker satisfaction across the company. These efforts were supported by decisions made to refine the hotel operating model.
“If you are running a hotel in 2024 the same way you ran it in 2019, and you sent us a business plan, we returned it to you,” Jabara said. “We are not in the business of forgetting lessons learned during COVID. We have to use that knowledge to know what is important to our guests and what is valuable to our employees, and change our habits to support both and remain profitable.”
From a cost-control standpoint, there is no way to ignore how COVID has left its mark on hospitality. Today, Meyer Jabara has new team members whose roles are dedicated to running the company’s business intelligence platform—roles that didn’t exist before the pandemic. Today, those positions help support operations at several hotels and have increased the company’s ability to respond to hotelier questions or concerns in a timely manner.
Other pressures on the business are new but unsurprising to anyone in hospitality. According to Jabara, owners and operators have been feeling pressure below the line from rising costs, particularly insurance, which are typically invisible to guests. “In some coastal markets, your hotel’s insurance doubled in 2024,” Jabara said. “In some cases where operators had to refinance their loan, insurance may have actually tripled. As a result, some profitable hotels transformed from assets with cash flow to stalled businesses over 12 months, all without considering the increased cost of goods or pressure from rising wages.”
Upper-midscale hotels are positioned to benefit from several potential trends that could come to pass in 2024, from an increase in inbound air travel to the U.S. to sustained high rates, driving travelers to more experiential offerings. A vital element of this, according to Jabara, is the upper-midscale segment’s ability to compete over service.
“What set a lot of groups apart from the competition in 2023 was high-level operations, which look a lot different today compared to 2019,” Jabara said. “Travelers are still willing to pay a premium for a great experience, but that experience has changed. We must acknowledge that.”
Upscale
While it hit the road in 2023 with a rocky start, the upscale segment commanded strong occupancy throughout the first 10 months of the year, maintaining 70.7% occupancy for the year, according to STR. The problem is that despite high occupancy and RevPAR averaging more than $115, the cost of running a hotel today is simply wearing some operators down.
Adam Suleman, principal/EVP, Equinox Hospitality, said that while his hotels are operating at topline revenue levels, costs are in some cases 20% to 30% higher than pre-pandemic norms. Utility costs have tripled in some areas; labor requirements are more extensive (and expensive); and even incidentals require a new price commitment.
“I stopped believing in normalization,” Suleman said. “When things change, it’s our job to pivot as best we can, and we spent the last year and a half working to change our operating model to match new dynamics emerging in the economy. These include more revenue travel, less business travel and a lot of time spent planning for this with sales and marketing.”
Despite these misgivings, Suleman, whose company manages the Sonesta ES Suites Dallas Richardson, remains upbeat about the future of upscale hotels and even referred to the segment as “recession-proof.” These hotels have lower operating models than full-service and luxury hotels, mainly when operating as extended-stay hotels, placing them in a sweet spot capable of thriving in good and bad times for the economy. The trouble is competing in the segment can be a significant challenge for aging properties.
Currently, Suleman is waiting for inbound air travel to the U.S. to pick up in earnest, as it would position upscale hotels for success, particularly from specific markets that have not been included over the past few years.
“We have taken a big hit from the lack of Asian travelers to the U.S. over the past four years,” Suleman said. “San Francisco used to receive 34 flights a day from Asia. This figure dropped to 10, or even four flights at one point. That market’s tourism industry was roughly 40% from Asia, and those travelers then trickled to other markets. We are optimistic that level of activity will return in 2024.”
His concern for the year lies in forecasts that anticipate flat revenue growth, indicating difficulty in pushing rate further without growing occupancy. Suleman would also like to see hospitality leveraged as a tool to spark further efforts to return workers to the office and promote business travel across the industry once again.
“I want to maintain optimism, and I hope the business-travel push we were looking for in 2023 will materialize in 2024,” Suleman said.
Upper-upscale/Independent
The upper-upscale segment began the year with low occupancy in January but spent the following months making significant enough gains to end the year at 69.1% by October. It spent six months with occupancy above 70% and never dipped below 68% after February. This level of consistency is befitting the segment, but upper-upscale hotel leaders are aspiring for more in 2024.
Tom Conran, founding principal, Greenwood Hospitality, said hotels in the upper-upscale segment have long surpassed key performance indicators from 2019 and are now at an inflection point where they are looking to the future for a new direction.
“Our industry has been through an awful lot, but even with the headwinds we have today with wars overseas and seemingly endless inflation, we learned we are stronger as an industry now than we were in 2019,” he said. His company’s ADR is up 2.4% YOY, while it is projecting a 7.2% increase in RevPAR for 2024 on the back of group and retail bookings and a reduced reliance on online travel agencies for bookings.
Tom Conran Greenwood Hospitality
Conran is bullish on the importance of decoding the labor challenge at higher chain scales. He considers it the one item hotels “can’t afford to discount” and is integral to providing guests with a predictable, enjoyable experience. Greenwood is also taking steps to adapt to the short-term nature of today’s business, where stays have been reduced, and contact between operators and travelers has been delegated to digital intermediaries. In this environment, hoteliers must be intentional about how they staff properties, which packages to offer and how they communicate with guests.
“Given the short-term nature of our business model now, we have to forecast very accurately,” he said. “Wage scales are going up, and we want to become the employer of choice in any market where we are present. To do so, we must become much more efficient at operations. We need to staff in a way that matches our forecasts.”
Operating is one thing, but acquiring and developing hotels may still be complicated for the upper-upscale segment in 2024. According to Rick Takach, chairman/CEO, Vesta Hospitality, today’s debt markets are still too choppy and inconsistent to pursue complicated deals. Vesta is just now reaching a point where it can confidently forecast for the future and is calling for some consistency.
“COVID didn’t just impact us financially; it tore my company to the bone,” Takach said. “Culturally, we lost key tenures and had to start over in many ways. When I think of reaching normalization, I ask myself if we are forecasting properly, operating with confidence and building our culture back—and we are.”
Takach is bullish on the rate potential of the upper-upscale segment, mainly thanks to its experiential nature and the current drivers behind leisure travel heading into 2024. “We as a society are in an experiential mode right now,” he said. “If we provide the right experience, we find we aren’t getting too much pushback on rate.”
Vesta’s goal for 2024 is to increase the number of upscale and upper-upscale venues with significant F&B operations. As Takach said, most of these properties are in the black and earning higher guest satisfaction than their competition. However, these hotels also present staffing challenges, particularly in complex labor markets such as coastal or mountain towns. Furthermore, Takach said the industry is still working on reestablishing the cultural high points that define hospitality thanks to an influx of new talent that may not yet possess the hospitality mindset.
“I was surprised at how long it has taken our company to return to normal operationally,” he said. “We’ve been in the business for 27 years, and in six months, everything changed. We as an industry are back to working on the basics, starting with the presentation of our property, and we are working to lay an infrastructure to ramp things up.”
Luxury/resorts
It can be lonely at the top, but the luxury chain scale was more than busy throughout 2023. Luxury occupancy was 66.6% through October 2023, while ADR was $284.01 over the same period. While recessions typically impact the highest and lowest chain scales most, luxury is breaking from the pack in terms of success and its challenges.
Tom Gilliand, EVP of operations, Crescent Hotels & Resorts, said the company is in a much better position today for several reasons, not the least of which is its ability to finally escape comparisons to 2019.
“That was forever ago,” Gilliand said. “Considering inflation factors and current staffing levels, we can no longer look back to 2019 as an accurate benchmark. We aren’t as reliant on large corporate bookings or contact business to fill rooms today. We are looking for stability.”
In the luxury segment, there is nowhere for rates to go today but up. Operators must account for increased amenities and service costs, and luxury travelers have fewer options to choose from compared to other tiers. Actual luxury travelers are seeking out options—they need them—and with that comes fewer opportunities to erode rates throughout 2024.
That said, luxury is the epicenter of rising costs and their impact on hospitality profitability. Everything associated with cost is heightened in this segment. Luxury hotel workers typically seek these positions as part of a larger hospitality career. Turnover for these employees can be much more costly than in other chain scales, as it often means losing a dedicated professional. Additionally, guest expectations are the last compromise a luxury hotel will make before cost and comfort. These hotels aren’t built to run lean, and guest expectations are off the charts.
“Costs are such a heightened sensitivity in luxury thanks to what we have to create to achieve the luxury level of guest engagement,” Gilliand said. “The guest expects a lot more out of the hotel and the stay experience—we sometimes refer to it as ‘emotional engagement.’ Finding, training and paying the right talent is expensive, but insurance rates have also increased for our properties based on where they are located in the country. This is a significant consideration in 2024.”
If Gilliand sounds affected, it’s only because he is aware of what it takes to achieve success at the luxury level. In reality, he said the industry has many reasons for optimism in 2024, starting with labor. More workers have been applying to more positions throughout luxury hospitality, and even though wages have increased as much as 24% at some of their properties compared to prior to the COVID pandemic, they appear to have stabilized.
Additionally, brand partners are not relenting on expectations and standards in the luxury segment, showing both confidence in their product and a recognition that luxury is a segment worth protecting in hospitality.
“We love operating in this space,” Gilliand said. “I recall after the Great Recession, there was a moment when many of us in the industry thought luxury was dead due to how targeted the segment is and how bleak our outlook was. But that did not come to pass, and we are still thriving. Our reputation is on the line today, and we are working hard to recruit young leaders who want to make this their career.”
