Despite Flat Occupancy Growth Over Past Two Years, Hotel REITs Should See Better Years Ahead

While the hotel industry saw a rapid recovery from the coronavirus pandemic as people sought to resume normal travel plans as soon as possible, growth across the hotel industry has mostly stagnated over the past two years. Leisure travel returned to near prepandemic levels in 2021, but high inflation in 2022 and 2023 caused many consumers to prioritize paying for rising costs on necessities like food and rent over additional vacation travel. Therefore, while business and group travel continue to slowly recover, weakness among leisure led to occupancies across the hotel industry stagnating approximately 5% below the 2019 peak. The average daily rate continues to rise across the industry, but the growth over the past two years has been in line with inflation. With flat occupancy growth and decelerating rate growth, revPAR growth for the industry has fallen to flat to low single digits thus far in 2024. However, we believe that as inflation falls, leisure travel will stabilize and eventually return to the prior peak and, combined with the continued recovery of business and group travel, future years should see revPAR growth closer to 3%.