Lodging Market Headed for a Brief Slowdown

Hospitality demand is expected to drop in 2020 and 2021, mirroring a decline in economic growth, but numbers will go on the upswing again in 2022, according to a CBRE Hotels report.

Image via Pixabay

Image via Pixabay

The hotel sector will experience a decline in demand in 2020 and 2021, marking a delayed mimicking of the anticipated deceleration of the national economy, according to CBRE Hotels Research’s June 2019 Hotel Horizons report.

Change is afoot in the lodging industry’s supply-demand structure, per the report. The lodging sector, as the economy, is cyclical. CBRE Hotels points to CBRE Econometric Advisors’ forecast of a slowdown in the national economy from a 2.2 percent increase in GDP in 2019 down to a 0.7 percent increase in 2020, and 1.4 percent in 2021. Noting that changes in lodging demand typically trail changes in GDP by one year, CBRE predicts that hotel demand will experience an annual growth rate of 2.0 percent in 2019, dropping to a respective 1.1 and 0.1 percent in 2020 and 2021.

With supply growing at an annual pace exceeding the long-run average, and demand expected to reach just 75 percent of its long-run average, the national occupancy level will go from holding steady at 66.2 percent in 2019 to decreasing to 65.7 percent in 2020, before dropping again to 64.6 percent in 2021. As for ADR growth, in markets with high concentrations of new supply, ADR growth will trail inflation from 2019 through 2022, while markets with limited supply growth will see ADR growth exceed inflation during that period. With regard to RevPAR, the growth rate will hit 2.0 percent in 2019 and then drop to an increase of 1.8 percent in 2020, before retreating altogether and declining by 0.5 percent in 2020, marking the first decrease in RevPAR since 2009.

Another cycle, a different outcome

While the U.S. lodging sector will see growth metrics slow or do an about-face over the next two years as the economy experiences a slowdown, it will undergo a change in direction again in 2022. CBRE predicts that GDP growth will rise to 2.7 percent in 2022 and 2023, and gains in the hotel sector will follow, with demand increasing to a respective 2.4 percent and 3.3 percent. Another bright light is CBRE’s prediction that despite declines, the national hotel occupancy level, which has been at record highs for the last four years, will still be 200 basis points higher than the long-run average through 2023.

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