(Corrected on June 27 to clarify a data point in the 10th paragraph.)
Record-high rates across the U.S. hotel industry and rising demand for rooms demonstrate that, despite pain at the gas pump and other cost pressures due to inflation, Americans are willing to pay more to travel.
"In May, room rates grew by 27%, which was the 14th consecutive month that room rates grew by over 25%. Compared to 2019, room rates are now 13% higher," said Jan Freitag, CoStar's national director for hospitality analytics.
The latest forecast from CoStar hospitality analytics firm STR and Tourism Economics shows "continued room rate growth on the higher [luxury] end and a bit more muted growth numbers on the lower [economy] end" for 2022, Freitag said. "But keep in mind that for economy and midscale hotels, rates are basically where they were in 2019, so we are growing off record highs. The same is true on the occupancy side."
Rate growth is expected to somewhat normalize in 2023, he said, adding that for luxury hotels, "room rate growth is expected to be zero."
"Room rates for the highest end of the market are incredibly strong, and it's hard to come up with compelling reasons why they grow even higher," Freitag said.
One factor that could ultimately drag down demand and rates at luxury hotels in the U.S. is the lifting of test mandates for travelers entering or returning to the U.S.
"European room rates, when paid for in U.S. dollars are still cheaper than they were in 2019. It is now so much easier to get back to the U.S. that the high-end American leisure travelers could finally go back abroad to Europe without the risk of getting stuck," Freitag said.
"So, I wonder if we will now hear a giant sucking sound of Paris, Potsdam or Prague as the luxury traveler ventures out after gladly spending their dollars in Miami Beach or Aspen over the last two summers."
Meanwhile, U.S. hoteliers are also feeling cost pressures, particularly with labor, but a reduction in staff has also led to a dramatic increase in one measure of profitability.
Freitag noted that the revenue per employee in the U.S. hotel industry rose from $6,900 in 2019 to $9,500 by April 2020.
"Whereas growth rates hovered around 2% to 6% in the last 10 years, it now stands at 62%," he said. "This is not sustainable."
For more of Freitag's insights on hotel performance data and recent transactions, watch the video above.