A tale of 25 US cities in February

If the difference between best- and worst-performing hotel markets in the United States was a heat map, it would range from tropical to tundra. Here’s a quick snapshot of February 2023, according to STR: ranging from $237.91 to $53.93 for RevPAR; $293.38 to $114.71 for ADR; and ranging from 82.7% to 46.4% for occupancy.

Zooming out, many of the factors behind those disparities are market forces that have been discussed since the first conversations around the pandemic’s effect on the industry.

Jan Freitag

“Leisure markets should continue to see healthy demand and some, small rate growth,” said Jan Freitag, national director of hospitality analytics at CoStar Group (STR’s parent company). “Markets that used to be focused on corporate demand will likely continue to struggle as office utilization is going through a structural change. Group destinations will continue to attract more groups, but often with short booking windows, such as in-the-quarter-for-the-quarter.”

Warm weather rules

Much has been made of the investment migration toward the southern United States, and STR’s data bears that out. Looking at both monthly and YTD numbers, the winners in raw dollar amounts are all toasty destinations: Phoenix, Oahu and Miami. Tampa and San Diego round out the top five for the month and Tampa and San Francisco for the year (a somewhat misleading statistic as San Francisco RevPAR declined 32.6% 2023 YTD over 2019). Freitag noted that the standouts for 2023 today reinforce the momentum of leisure and group travel.

Markets that have seen strong results this year are Las Vegas [+19.7%], Nashville [+11.5%], St. Louis [+11.6%], most likely based on group demand.

Jan Frietag

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“Markets that have seen strong results this year are Las Vegas [+19.7%], Nashville [+11.5%], St. Louis [+11.6%], most likely based on group demand. Orlando and Tampa had very good results impacted by strong spring break and continued leisure demand,” he said.

Looked at as percent changes from 2019 rather than raw numbers provide additional insights into shifting trends. Phoenix’s RevPAR jumped 55% February 2023 over February 2019. San Francisco’s dropped 43.2%. Year-to-date is a slightly more modest difference: up 37% and down 32.6% for the same cities. Las Vegas, Tampa and New Orleans also had strong numbers. Atlanta, Minneapolis, and Seattle joined San Francisco as having the largest drops both month-over-month and YoY compared to 2019.

Percent changes for ADR show a similar but not identical picture. Las Vegas pulled off the strongest February numbers versus 2019; the year-to-date trophy went to Phoenix’s 43.8% jump. Miami, New Orleans and Tampa, San Diego and Orange County, California, also had strong month and year-to-date numbers (by percent change over 2019). San Francisco and Minneapolis had the biggest drops in February, but year-to-date was a brighter comparison – San Francisco filled just 7.8% fewer rooms compared to 2019 and only it and Atlanta had negative numbers.

Occupancy hasn’t quite recovered

Snowbirds continue to flock to Florida and Hawaii, with Tampa, Orlando, Miami each over 80% occupancy for February 2023 and Oahu nudging toward it at 78.9%. Those markets’ year-to-date numbers hover around the mid-70s. That said, not one of the top 25 markets could pull off a positive change in occupancy for the month. The closest to a winner was Dallas, which posted a 0.9% drop over February of 2019. Year-to-date, not everything is big in Texas, but it’s the only city that’s filling more rooms than 2019 – by 0.5%.

That could sound like a bleak picture as layoffs, labor issues and the threat of recession loom. “But, for many markets KPIs are still below the 2019 results so any slowdown could be made up by the continued improvement in overall spending,” Freitag said.

NOI and putting the numbers into practice

Beyond the RevPAR, ADR and occupancy numbers, the NOI story further confirms the overall trends. The five top markets are Orlando, Phoenix, Miami, San Diego and (the only surprise) San Francisco. The bottom five? Chicago, Seattle, New York City, Minneapolis and Boston.

Are these trends likely to continue? Inbound demand from borders opening, a strong dollar (which could drive U.S. leisure travel abroad) and new supply, according to Freitag, might change the picture somewhat – especially hotels coming online in Dallas, New York City, Las Vegas and Nashville. He cited labor as the industry’s “number one headache.” Brands’ expectations are rising, as well. “They will continue to push owners for renovation dollars and to implement PIPS that have been on the drawing board for over three years,” Freitag added.