More than two years into the pandemic, Americans are still focused on long weekend trips and visiting domestic resort locations, prompting C-corporations and real estate investment trusts to purchase increasingly expensive luxury hotels and resorts in the U.S., according to CoStar Group Inc. National Director of Hospitality Analytics Jan Freitag.
Freitag pointed to Host Hotels & Resorts Inc.'s third quarter 2021 acquisition of Alila Ventana Big Sur, a 59-room resort on the California coast that sold during the third quarter for $150 million, or around $2.5 million per hotel room key — one of the highest prices per room key in the U.S. ever recorded.
A flurry of other large U.S. hotel transactions occurred in 2021, including Sunstone Hotel Investors Inc.'s purchase of the 130-room Montage Healdsburg resort for $265 million, as well as the 85-room Four Seasons Napa Valley resort for $177.5 million.
"If you look at owners, the large funds that are trying to get into the hotel space, they are paying top dollars for resort destinations," Freitag said.
Reaching pre-pandemic levels
Domestic leisure travel demand is continuing to keep the U.S. hotel industry afloat, pushing room rates and revenues above 2019 levels. The average daily rate for a U.S. hotel room was $146.61 in March, up by 10.9% from the same month in 2019, according to hotel data analytics company STR. Revenue per available room averaged $93.82, up by 4% from March 2019.
The steady improvement is being driven primarily by domestic travel, as overseas travel to the U.S. still remained 60% below 2019 levels in February, according to the most recent monthly report from the U.S. Travel Association.
Additionally, passenger traffic through U.S. airports has edged closer to pre-pandemic levels. In January, the average number of daily travelers passing through Transportation Security Administration checkpoints was 22.5% lower than during the same month in 2019, according to TSA data.
That gap has been rapidly closing over the past three months. In February, the daily average was 15.6% lower than 2019 levels; in March, it was 12.4% lower. Through April 19, the average number of daily travelers was only 9.5% lower than April 2019 levels.
Return to office questions
While leisure-focused properties have rebounded and room rates continue to rise, hotels in downtown locations have not fared as well, reflecting the slow return of business and group travel. At the end of 2022, U.S. hotel business travel revenue is projected to be $20.7 billion, or 23.1% lower than 2019 levels, according to an April report from the American Hotel & Lodging Association and Kalibri Labs.
Freitag said business travel recovery will mostly hinge on the extent and timing of workers returning to the office.
"The $100 billion dollar question is, how does return-to-office play out, because there's a direct relationship between that answer and corporate transient demand," Freitag said.
