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CBRE Group (NYSE:CBRE) has raised its forecast for hotel performance this year, citing stronger-than-expected demand and more modest supply growth drive occupancy gains.

In its revised forecast, CBRE is predicting 2023 revenue per available room (RevPAR) will reach $97.89, a 6% year-over-year uptick and an increase of 43 cents from its previous forecast. The new forecast is based on a 65-basis-point increase in expected occupancy compared with the previous forecast issued last February.

CBRE added that the average daily rate (ADR) is now expected to increase by 3.7% this year, down from the previous forecast of 4.2% — the slight decline is attributed to lower inflation expectations and a greater demand for group travel and so-called “shoulder-period” demand (between peak season and offseason), which are often at a lower rate. Furthermore, the revised forecast anticipates 0.8% average GDP growth and average inflation of 4.6% this year – and the correlation between GDP and RevPAR growth directly impacts 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, CBRE’s head of hotel research and data analytics.

However, in view of the impact that the pandemic had on hotel fundamentals in the first quarter of 2022 and an anticipated deceleration in GDP growth in the second half of 2023, CBRE predicted the first quarter of 2023 to be the high point of the year for RevPAR growth – for the remainder of 2023, CBRE anticipated the growth rate to decelerate to the 4% to 5% range over the next few months before further decelerating to the 2% to 3% range the fourth quarter.

“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,” added Michael Nhu, senior economist and CBRE’s head of global hotels forecasting. “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.”