According to Fitch Ratings, the U.S. hotel sector’s revenue growth is expected to decrease as occupancy rates continue to recover while average daily rates (ADR) decline due to a shift in demand towards more affordable business and transient travel instead of high-priced leisure stays. The rating agency also reported that its base ratings case predicts RevPAR growth of 5%-6% in 2023 and 0%-2% in 2024, with upper upscale and upscale hotels performing better than others.
Fitch noted that asset-light brand owner/operators are better positioned compared to hotel owners over the next one-to-two years because they have diversified portfolios and lower fixed costs. However, there is potential downside risk for the hotel sector’s fundamentals as consumer spending weakens into 2024, resulting in a normalization of leisure rates coupled with slower economic growth.
On a positive note, Fitch expects room supply growth to remain below historical averages for at least two years due to difficult borrowing conditions and low property values in major urban markets. This forecast aligns with their belief that there will be continued challenges for the industry despite ongoing recovery efforts from COVID-19 impacts.
