U.S. hotel performance in the third quarter continued to be driven by rate growth and pricing power, but the dollar volume of hotel transactions is an indication that many buyers and sellers are staying on the sidelines.
Jan Freitag, national director for hospitality analytics at CoStar, said in his latest video analysis that U.S. hotel average daily rate in September was 17% higher than in 2019, "a continued sign of operator pricing power that seems to continue unabated." That rate growth drove a 25% increase in September revenue per available room.
Rebounding hotel demand from business and group travelers, adding to continued strength in leisure demand, is also helping.
"High-end hotels sold over 7.9 million group rooms and group rates for the month stood at $234, the highest ever recorded. Last month I had expected that ADR to come in at $232, but, as usual, the reality was stronger," Freitag said, adding that "group room demand in September was just 4% below September 2019 results and we expect October group demand to continue to be strong."
However, a cooling deals environment hints at lingering uncertainty in the industry.
"Just over $10 billion of assets were sold in the third quarter, and that was just a billion or so more than in [the second quarter]," Freitag said.
The first quarter of 2022 marked the fourth consecutive quarter in which more than $15 billion in hotels were traded in the U.S.
"The strong sales activity we reported for the four quarters through [the first quarter] of this year has ended. And with interest rates rising and a recession looming it is no surprise that buyers and sellers are staying at the sidelines — unless they absolutely have to trade," Freitag said.
Meanwhile, hotels are still being built, especially in the South.
"Of the markets with the strongest supply growth, six are in Florida, three in Tennessee and two in North Carolina. This activity in the South shows that developers want to take advantage of the rapid performance recovery during 2021 in the Sun Belt states, which will likely fuel further development," Freitag said.
For more of Freitag's insights on U.S. hotel performance, watch the video above.