CBRE, the hospitality industry consultancy, is reducing its forecast for hotel performance this year as weaker-than-expected summer demand resulted in a shortfall in the second quarter of 2023 in revenue per available room (RevPAR).

The company has revised its forecast for 2023 RevPAR to $96.64, up 4.6% year over year, but down $1.25 from its previous forecast in May 2023. The revision is predicated on a 70-basis-point (bps) decrease in expected occupancy compared with the earlier forecast. Average daily rate (ADR) is expected to increase by 3.6% in 2023, down 10 bps from the previous forecast.

CBRE’s baseline-scenario forecast anticipates 1.6% average GDP growth and average inflation of 4.3% in 2023. Given the strong correlation between GDP and RevPAR growth, according to the company, changes in the economic outlook will directly impact lodging industry performance.

Demand declined 1.2% year over year in the second quarter, the first decline since the post-pandemic recovery began in the second quarter of 2021. ADR growth of 2.6% was in line with CBRE’s previous forecast. The combination of lower-than-expected demand and in-line ADR growth resulted in muted RevPAR growth of 1.1% in the second quarter of 2023, below CBRE’s forecast of 4.4%.

Rachael Rothman, head of hotels research & data analytics, said 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. Inbound international travelers to the US, she said, 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, said Rothman, “we expect to see an uptick in inbound international travel to the US, supporting further demand growth.”

The best-performing location type in the quarter was urban, where RevPAR growth increased 4.7%. The weakest location type was resort, where RevPAR declined 3.7%. Despite the pullback in resorts during the quarter, the location type remains nearly 15% above its pre-pandemic levels.

CBRE forecasts that 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.

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