U.S. hotel companies and real estate investment trusts reported higher revenues from groups booking rooms in the third quarter.

Business Transient Demand Slow and Steady

Many publicly traded U.S. hotel companies and real estate investment trusts reported a pickup in the pace of group travel and revenues in the third quarter. At its hotels that rely most on business from group travelers, DiamondRock Hospitality reported revenues were collectively up 60% year over year. Those hotels are the Worthington Renaissance Fort Worth Hotel, Westin D.C., Westin Fort Lauderdale and Westin San Diego. At Marriott International, U.S. and Canada group revenue on the books for 2024 is pacing up 14% versus 2023. Meanwhile, business transient — demand from individual business travelers — has been slower to recover for some companies, including Host Hotels & Resorts. If macroeconomic uncertainty improves, business-transient demand could return in a more meaningful way in 2024, executives said. Highlights from hotel company earnings calls on the shift in demand mix:

“We saw meaningful in-the-quarter-for-the-quarter [group] bookings for the third quarter. That trend seems to be pretty consistent. We actually picked up 85% more relative to ’19 in Q3 in-the-quarter-for-the-quarter. The 245,000 group room nights that … we picked up … about 46% of that was a pickup for Q3 and about 54% of that was for Q4.

“Going into next year, as the booking window extends, we do expect that to moderate somewhat just because there wouldn’t be any capacity left, frankly, at the hotels. To put that into perspective, the in-the-quarter-for-the-quarter booking window extended by about 10 days — it was 80 days before, and it’s like 90 days now. And then all future arrivals, that extended by 15 days. …

“Overall, citywide [event] pace for 2024 is strong in Seattle, Boston, New Orleans and Miami as well. What’s interesting is right now, when you look at 2024, the citywide room night pace is actually 90% of 2019 actuals. …

“On [business transient], it’s been a very, very slow recovery from a room-night perspective. Obviously, we had the strength of the special corporate rate this year, almost double digits. But the room-night recoveries across the board for the portfolio is still down around 20%. That said, the major markets … San Francisco, New York, Denver … it’s down only 10% to ’19, which is pretty impressive.”

“We expected group revenue gains in the third quarter to be softer than the strong results seen in the first half of the year. As we discussed in our last conference call, this was mainly due to the shifts in the citywide calendar in Chicago.

“Third-quarter group revenues were in line with our original expectations, but group room rates were slightly stronger than forecast. We expect comparable group revenue will exceed 2019 levels this year, but we forecast group room nights will still be 10% or 79,000 room nights below 2019.

“Next year is shaping up to be very strong with group revenue pacing up over 23% compared to the same time last year. Our footprint continues to serve us well. In our largest group markets, the Westin Boston group revenue is pacing up nearly 18%, and the Chicago Marriott is up over 40%. Several other stars on the group side are emerging. Group revenues at The Worthington [Texas], Westin D.C., Westin Fort Lauderdale and Westin San Diego are collectively up over 60% compared to the same time last year. We believe the strength and breadth of our group set up for 2024 is a unique advantage for DiamondRock.”

“Group revenue per available room [in the quarter] rose 8% year-over-year, outperforming leisure and business-transient RevPAR growth of 5% each. … On the group side, RevPAR exceeded 2019 peak levels for the first full quarter since the pandemic, and we continue to see positive group booking trends in the quarter for all future periods. …

In 2024, “you will see the return of the mega groups that started in the second half of this year. … you will see a decent shift to the large groups because they have a huge amount of pent-up demand that needs to be satiated, and that will be happening next year. … Group is just off the hook with tons of demand and lead times are lengthening. There’s not been a lot of group hotels built in this country for essentially 20 years, so you have all this demand and fewer places to go. So groups have to start planning further in advance and booking much further out.”

“We are incredibly pleased with our performance year to date. A steady recovery in business transient and continued strength in leisure demand drove comparable hotels third-quarter RevPAR growth of more than 7% as compared to the third quarter of 2019, our highest quarterly comparable hotels RevPAR growth since the onset of the pandemic. …

Overall travel trends are favorable. Leisure demand remains elevated to pre-pandemic levels, and steady improvement in business travel demand continues to bolster midweek occupancies.”

“Leisure travel continued to be strong during the quarter, with weekend occupancies of 82%, up 1% compared to the third quarter of 2022. In addition, we continue to see improvement in business demand, supporting average weekday occupancies of 75%, an increase of 2% year over year. While weekday occupancies are ahead of 2022 for the quarter, there still remains upside opportunity relative to pre-pandemic weekday occupancy levels.

“Midweek occupancies have continued to strengthen over the last three weeks in October, while shoulder-night and weekend occupancies remain strong, supporting the resiliency of leisure demand. …

“I think the biggest question mark is prior to the pandemic, we didn’t historically benefit from leisure as much in November [and] December as we have in a post-pandemic world. And November and December are lighter from a business transient perspective. And while we continue to see improvement from [business transient], it’s kind of just waiting to see what the balance is between leisure and [business-transient] travel in just softer occupancy months for us, seasonally.”

“Accelerating urban and midweek demand led by improving business transient and strong group trends as well as continued outperformance within the [NewcrestImage] portfolio served as our primary growth catalyst in the quarter.

“Urban and midweek demand trends in September and October were particularly strong, which resulted in September RevPAR growth of 3.6%; and October is expected to finish generally in line with September. …

“It is important to note that leisure demand remains strong in a historical context, illustrated by RevPAR in the retail segment of our portfolio, which is a reasonable proxy for the leisure transient customer still trending well above 2019 levels. The outlook for leisure demand broadly remains positive with more normalized comparisons coming next year. Group demand was especially strong during the third quarter, driving occupancy approximately 250 basis points higher than the third quarter of last year and a 12% increase in non-rooms revenue.

“The evolution of hybrid and remote work has created increased demand for smaller groups with shorter-term stays and tighter booking windows, for which our portfolio is particularly well-suited. Overall, pro-forma total revenue for the portfolio increased 3.3% in the third quarter. Business travel typically accelerates post-Labor Day, and we were encouraged with the clear upward trends in weekday performance, particularly Tuesday and Wednesday nights as indicators of growth in business transient and group demand. Since Labor Day weekend, Tuesday and Wednesday absolute occupancy has reached 84%, driving nearly 10% year-over-year RevPAR growth on those days of the week.”

“While we expected softness in the lower mid-scale and economy chain scales in the back half of this year, we are optimistic about RevPAR growth prospects for the coming year given the favorable long-term business and leisure trends and the initiatives we put in place to capitalize on these tailwinds. …

“In terms of next year, we’re still early in our budgeting process, but still believe there is an ability to continue to push rate. When you look at the long-term tailwinds, I think first quarter may be a little tougher, again, back to comps given that we were a little bit stronger in the beginning of the year. But most of the prognosticators believe that leisure travel and business travel will continue to accelerate second quarter and beyond. And really, it’s a function of the economy as we kind of ride through this.

“The prognosticators said we feel like we’ve avoided a recession and that we see the long-term tailwinds of increasing retirements of the baby boomers and 3.5 million additional retirees every year, which are a big driver of leisure travel, remote work. Leisure travel continues to be strong, 30% of all business trips are now expected to have a leisure component to it. And … the [reassurance] of American jobs and the infrastructure bill are really good tailwinds for a drive in our consumers and in our brands.”

“The third quarter tends to see a seasonally higher level of leisure transient travel, which accounted for 45% of global room nights during the quarter, about 4 percentage points above the first half. Globally, demand in this segment was, again, quite strong, with room nights up 7% over the 2022 third quarter, leading to 9% leisure transient revenue growth.

“In the U.S. and Canada, leisure revenues rose 4% [year over year], even as many domestic guests traveled to international locations, particularly in Europe and Asia-Pacific. In the third quarter, leisure room nights from U.S. and Canadian guests traveling outside the region were up nearly 25% over the last year when cross-border travel was still constrained by COVID-related restrictions.

“Business-transient demand accounted for 32% of global room nights in the quarter, while certain industries like technology and finance saw nice sequential improvement in demand during the quarter. The overall growth per segment remained slow and steady, with business-transient revenues rising 4% versus 2022 in the U.S. and Canada.

“Global group room-night share stood at 23% in third quarter. Compared to the year ago quarter, group revenues rose 9% globally and 5% in the U.S. and Canada. The performance of group coming out of the pandemic has been remarkable, and the segment is expected to continue to be a meaningful driver of revenue growth going forward.”

“Demand for all customer segments remains solid. Leisure transient revenue increased 4% over an exceptionally strong third quarter last year as consumers continue to prioritize travel experiences. Leisure travel remains at elevated levels — 22% above the third quarter of 2019, including a 30% increase over 2019 in the month of September.

“Business transient revenue increased 19% and has recovered to approximately 90% compared to the third quarter of 2019. Although most of our corporate-negotiated accounts are on a dynamic pricing model, we are about halfway through discussions for our fixed-rate accounts and expect rates to increase in the high-single digit range in 2024 compared to 2023.

“Lastly, group room revenue increased 10% compared to 2022 and was up 5% compared to 2019. Growth in group revenue accelerated during the quarter and finished up 13% in September compared to 2022. We had another excellent quarter of group production for America’s full-service managed properties, booking approximately $450 million of business for all periods, a 17% increase.”

Editor’s note: Chris Nassetta serves on the board of directors for Hotel News Now’s parent company, CoStar Group.

By Dana Miller
Hotel News Now – read full article here