Business travel and group demand is expected to offset softening leisure demand this year and into 2024, with occupancy levels flattening amid macroeconomic changes, according to a new PwC forecast.
While leisure travel remains strong, it is slowing and transient business travel and group business are “contributing more significantly to future growth expectations,” following the sector’s slow re-emergence, according to the according to PwC’s latest U.S. Hospitality Directions report.
Despite economic headwinds that were expected to slow the industry’s recovery pace, according to PwC’s previous projection, released in November, U.S. hotels “continue to outperform expectations.” PwC now projects full-year 2023 occupancy to reach 63.4 percent, up 1.3 percent year over year, but slightly below PwC’s previous outlook of 63.6 percent. PwC attributes the slight drop to demand growth slowing “significantly” for the remainder of the year as “the economy continues to slow.”
Occupancy in Q1 2023 was down 2.1 percentage points from Q1 2019.
Based on STR data, U.S. hotels in the first quarter of 2023 exceeded Q1 2019 revenue per available room by 13 percent, according to the report. Average daily rates increased 17 percent over Q1 2019. PwC still projects rates to increase in 2023, just at a slower pace.
According to PwC’s updated outlook, 2023 RevPAR is now projected to increase 5.5 percent year over year to $98.42, down slightly from the company’s previous forecast of $99.12. PwC’s now projects ADR to increase 4.1 percent year over year to $155.21 in 2023, down slightly from its previous prediction of $155.81.
“Significant risks to this outlook include the pace and magnitude of changes in the macroeconomic environment, continued high vacancy rates in office spaces nationwide, and increasing geopolitical tensions,” PwC report authors wrote in the updated outlook.
Looking ahead, with occupancy levels expected to flatten in 2024, PwC projects 2024 RevPAR to increase 3.5 percent year over year—to approximately 118 percent of pre-pandemic levels. ADR is projected to reach $160.42 in 2024, up 3.4 percent year over year.
