Top 25 Transient Rate Premium Dropped To Only $ 3 Compared to Other Markets
Top 25 Market Rate Premium Over
All Other Markets
$ 50
$ 40
$ 30
$ 20
$ 10
$ 0
- $ 10
- $ 20
- $ 30
Source : CoStar , July 2024
2019 2020 2021 2022 2023 Transient Room Rate
“ remains the strongest customer segment ,” Capuano said .
This was further elucidated in recent CoStar data that showed that group business in the top 25 U . S . markets had basically fully recovered from 2019 levels . It ’ s on the transient side that there is a shortfall . Rooms sold in the top 25 markets typically achieve a higher average daily rate than rooms sold outside these larger markets . Prior to the onset of the pandemic , full-service hotels in the largest markets , according to CoStar , registered a $ 20 transient ADR premium and a $ 42
2024 2019 2020 2021 2022 2023 2024 Period
Group Room Rate
RevPAR Change by Class : Bifurcated Results
U . S . RevPAR % change , change by class , YTD June 2024
2.1
Luxury
2.4
Upper Upscale
2.0
Upscale
0.2
Upper Midscale
-1.4
Midscale
-4.4 Economy
group ADR premium compared to all other markets . These rates naturally slipped during the pandemic and the recovery has been uneven .
CoStar pointed out that over the course of the last few years , group has largely recovered its ADR premium foothold to $ 36 through June . It ’ s a different story for the transient ADR premium : After two consecutive years when other markets showed a transient premium over the top 25 markets , the current premium of $ 3 is well off pre-pandemic levels . The current year ’ s premium is a contraction from the $ 6 achieved a year ago . CoStar further noted the significance of the collapse of the top 25 transient rate premium since transient demand has grown 1 % from 2019 . This contrasts with all other markets where transient demand grew by 11 %.
“ You can make two arguments here ,” Freitag said . “ On the one hand , you could say that hoteliers in those markets are not as aggressive in their room-rate pricing and are building demand and occupancy , which then allows them to have more spend out of the room . On the other hand , it could be that transient travelers , especially on the leisure side , are still choosing other locations outside of the top 25 markets .”
One element that is aiding hotels up and down the chain scales and motivation for stronger pricing power is the dearth of new hotel supply . A normal per-annum new supply rate is around 2 %; it ’ s closer to 0.6 % currently , a result of higher interest rates and the attendant higher cost of capital that is keeping new , ground-up construction at bay .
That could change , but will take multiple quarters of absorption . Lodging Econometrics noted there are 6,095 projects with 713,151 rooms in the pipeline as of Q2 , a new all-time high that represents a 9 % YOY increase in projects and an 8 % YOY increase in rooms compared to Q2 2023 totals . How many of these projects get to the finish line and open is unknown .
Jan Freitag , national director , hospitality market analytics , CoStar Group
September 2024 hotelsmag . com 19