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CBRE (NYSE:CBRE) reduced its 2023 forecast for hotel performance, citing a weaker-than-expected summer demand that created a second quarter revenue per available room (RevPAR) shortfall.

The revised forecast is now predicting a 2023 RevPAR of $96.64, up 4.6% year-over-year but down $1.25 from an earlier forecast published in May. CBRE explained that a 70-basis-point (bps) decrease in expected occupancy compared with the earlier forecast required this revision. Average daily rate (ADR) is expected to increase by 3.6% in 2023, down 10 bps from the previous forecast.

“Historically, there has been a strong correlation between hotel demand and GDP growth. This makes the decline in demand in Q2 2023 somewhat surprising given the stronger-than-expected GDP growth in the quarter,” said Michael Nhu, senior economist and CBRE’s head of global hotels forecasting. “This disconnect in trends suggests consumer preferences have temporarily shifted, as more Americans are traveling overseas, particularly to Europe and the Caribbean, rather than traveling domestically.”

CBRE pointed out a 1.2% year-over-year decline in demand during the second quarter, the first decline since the post-pandemic recovery began two years earlier. ADR growth of 2.6% was in-line with CBRE’s previous forecast, but the combination of lower-than-expected demand and in-line ADR growth resulted in second quarter RevPAR growth of 1.1% — which was considerably below CBRE’s earlier forecast of 4.4%.

During the second quarter, the best performing lodging location type was in the urban markets, where RevPAR growth increased 4.7%. The weakest location type was resort, where RevPAR declined 3.7%.

“An analysis of travel trends suggests that record numbers of Americans are traveling abroad this summer with a particular focus on Europe and the Caribbean,” said CBRE Head of Hotel Research & Data Analytics Rachael Rothman. “Inbound international travelers to the U.S. are still 27% below their pre-pandemic levels, causing a temporary imbalance in demand. As long-haul flights from Asia are added back and visa delays ease, we expect to see an uptick in inbound international travel to the U.S., supporting further demand growth.”

Furthermore, CBRE is forecasting 1.6% average GDP growth and average inflation of 4.3% in 2023, which would impact the lodging industry’s performance going forward. CBRE is also predicting 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.