Six Questions for the Hotel Industry’s Summer

The NYU International Hospitality Industry Investment Conference, meeting this year for the 44th time, marks the unofficial beginning of the summer for hotel owners and investors.

My colleagues commented on optimism and readily available capital that will fuel the flow of hotel deals for the remainder of the year. And the specter of a recession was only a distant storm cloud in New York. As we enter the next few quarters I do wonder about a few topics, and the answer to these questions could make this summer either “very good” or “just OK.”


The continued outperformance of high-end resorts and luxury hotels has been well-documented. Room rates keep climbing and climbing with no end in sight. The prior all-time high average daily rate, or ADR, from 2019 will be surpassed in 2022 in nominal terms and in 2024 in real terms, so says the new STR forecast

But I wonder if this summer two competing forces will slow the high-end ADR growth. On the one hand, luxury travelers, after staying on US soil for two years, are eager to head abroad. And with no travel restrictions or testing requirements in place, it is easy to hop across the Atlantic or Pacific. The US testing requirements were lifted over the weekend

Then will we hear “a giant sucking sound” out of Berlin, Rome or Paris when the luxury travelers head back abroad? European travelers may come back stateside, but are those groups or tourists on pre-negotiated and cheaper trips?

At the same time the steady drum beat of higher inflation and higher airfare may make some travelers who were “marginal” luxury travelers, spending two years of savings after being stuck at home, return to their more normal spending patterns of three- or four- star accommodations. Will all these factors squeeze occupancy and hence rate growth for higher-end hotels?


In April, luxury and upper-upscale hotels sold 7.2 million group rooms, just 1 million group rooms shy of the April 2019 result. To me, this is an amazing recovery.

Granted, the group demand on weekends is still pandemic-induced, pent-up demand for weddings, celebrations of life and other social affairs, but the publicly traded companies commented on the return of corporate group and association events on their earnings calls as well. One thing is abundantly clear, a Zoom or Teams call cannot substitute for a handshake or a group dinner.

At NYU, chairperson Jonathan Tisch evoked another era, and another century, when he cited the adage of “you cannot fax a handshake.” And so, I am quite bullish on association demand as it is a very efficient way to meet with your clients, vendors and partners in one city when everyone is there at the same time.

Another trend is working in group demand’s favor: As more workers stay remote it is hard to build culture, and what better way to do just that than in a ballroom, over a group dinner or at a team-building event.

I wonder if there will be an increase in events that did not take place pre-pandemic when workers had an actual water cooler to gather around.


The other side of remote work is the lack of business travel by office workers who are not in the office. Return to office plans are all over the map, from Tesla’s rule of 40 hours in the office to some IT sector giants going “virtual first” to many companies embracing a hybrid schedule, often three days in the office and two days remote. When workers are not in the office, they cannot meet with salespeople and partners and so the meetings may just stay online.

I am not saying that corporate transient demand will go away; it will just be harder to manage. I think we all agree that technology is now so ubiquitous that the meetings in the middle of the negotiation to get a deal done can easily happen online. Yes, there needs to be a first kickoff session and a closing dinner, but in between the need for in-person meetings has diminished. But by how much? I’m not sure.


In April, the number of hotel rooms in construction stood at 153,000, a decline from the February 2020 peak of 212,000 rooms. The deceleration should come as no surprise since projects that are in construction will still open, but it is hard to break ground on projects in the final planning stage.

For one, debt has gotten more expensive and if your financing was not lined up already, you may find it harder to secure favorable terms. Doors, TVs and outlet covers may be on a slow boat from China and stuck in the supply-chain morass which makes planning for them hard and may push out construction timelines. The good news is that the supply-chain woes are getting resolved bit by bit.

In addition, the stellar performance of hotel assets compared to other asset types makes construction more appealing to developers. Keep in mind that many existing hotels have not been renovated over the past two or three years as their capital reserves were used to pay down debt. So old hotels really look older. What’s more, customers like the new hotel smell and chose the new competitor. I wonder if over the next two quarters we see an uptick in construction as owners and developers seek to take advantage of prevailing supportive development conditions.


In 2021, more than $50 billion of assets traded hands, the single highest volume per year ever recorded by CoStar Group. The first quarter of 2022 was the most active first quarter since 2016. All of this simply points to the abundance of capital, eager to capitalize on the existing opportunities.

Resort developments are an investor favorite, but pricing in that space is very “healthy.” Downtown urban hotels are not an obvious purchase unless a buyer has conviction about how return-to-office plans will develop (see above). Leisure-driven markets have fielded interest from buyers across the spectrum. After 2020, it stands to reason that demand from American leisure consumers is basically recession-proof.

Another factor in favor of American hotels is that uncertainty driven by global events, economic cycles and inflation make US real estate a safe haven, and hotels are an asset class that is relatively attractive. I wonder if these factors could add up to another stellar year for hotel assets across the board.


The US Bureau of Labor Statistics suggests that the number of workers in the accommodations sector has dropped from 2.1 million workers in early 2020 to just over 1.7 million in May 2022.

No matter the context, every conversation with industry participants eventually comes back to the issues of access to labor, wage growth and competition for existing staff from other hotels or other industries. Wages will continue to increase for the industry to stay competitive.

Some jobs will be redesigned, and some services will be reassessed. I am not sure that housekeeping for stay-over nights in a limited-service hotel will ever come back. Ordering and paying via QR code may be a welcome long-term side benefit to the contactless days of 2020. And keep in mind that those electronic menus can finally start the era of yield management for restaurants in earnest. But waiters cannot be automated, and cleaning rooms is and will be a manual job.

I doubt that all of the more than 300,000 open positions can be value-engineered away, but some roles may never come back. Those will be only a fraction of the jobs that remain open as the industry struggles to become or remain the employer of choice. I wonder which operator will find the magic combination of wages, benefits, motivation and career growth opportunities to appeal to the new generation of workers and leaders?

Some of these answers, such as group demand or room rates, can be easily measured. Some, such as return to office and midtown room demand, or labor force development will take time and deeper insights. I look forward to seeing if this summer brings some clarity.

Jan Freitag is the national director for hospitality market analytics at CoStar.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or CoStar Group and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to contact an editor with any questions or concern.

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