Headwinds Turning to Tailwinds in Hospitality Market Article originally posted on Globe St. on September 4, 2024 After facing continuing headwinds at the beginning of this year, the hospitality market is seeing signs of momentum as business and group travel is balancing a pullback in leisure travel. Average occupancy in the first quarter was down more than 100 basis points from the same period last year, according to Marcus & Millichap’s third-quarter hospitality report. Household budgets have been constrained by inflation and higher interest rates, which impacted the hotel sector’s occupancy recovery. Beginning in the second quarter, occupancy rates grew 60 basis points year-over-year, although the year-long average occupancy rate at limited-service hotels fell by 140 basis points through the first half of the year. Higher-income leisure travel pushed the full-service rate up by 100 basis points during that span, said Marcus & Millichap. In the leisure space, summer travel has indicated tailwinds for the hospitality market, with TSA reporting the 10 busiest domestic air travel days in history between May and June of this year, corresponding with average hotel occupancy at airport area hotels growing 80 basis points during the second quarter. In addition, roadway travel was up during the Fourth of July weekend, and continued roadway travel coupled with stable fuel costs could contribute to further momentum in the hospitality sector. Corporate travel is strengthening this year, although business-related hotel demand has yet to return to pre-pandemic levels in most markets, according to the report. Spending on corporate travel is expected to increase by up to 12% this year, driven by live events and increased prioritization of employee connectivity in an era of hybrid work. Among the eight major U.S. metros that had the strongest growth in room nights booked from July 2023 to June 2024, many are benefiting from a return of conventions and events. That list includes Boston, New York City, Washington, D.C., and Houston. Rising business travel nationally is reflected in the average urban hotel occupancy rate jumping by 140 basis points during the year ending in June. Going into the second half of the year, nearly 157,000 rooms were under construction across the country, the largest total at mid-year since 2020. Marcus & Millichap said that the increase shows optimism in the hotel sector’s long-term outlook as it comes during an otherwise challenging time marked by elevated borrowing costs. The firm noted a shift in the composition of the construction pipeline, with limited-service hotels accounting for about 20 percent of rooms underway, representing the largest share for the segment in more than two decades. The proportion of economy rooms is at a 12-year high while midscale accounted for its greatest percentage since 1998. On the other hand, full-service hotels comprise a 26-year low share of the pipeline, likely driving stronger occupancy growth in the near term.