Orlando, Phoenix Hospitality Markets Lead US Group Occupancy Rates

Article originally posted on CoStar on May 12, 2023

The group segment of the hospitality industry, defined as blocks of 10 or more rooms booked per night, had a strong first quarter, continuing the segment’s recovery that gained momentum in the spring of 2022.

According to STR, CoStar’s hospitality analytics company, revenue per available room — or RevPAR, an industry-standard metric of hotel performance — among luxury and upper upscale hotels rose 52% in the first quarter of 2023, thanks to a 38% increase in group occupancy as attendance at conventions and group meetings continued to recover.

A portion of the strong growth in the first quarter can be attributed to relatively easy year-over-year comparisons against the impacts of the omicron variant that led to some event cancelations in early 2022. Year-over-year growth was strongest in January and softened as the quarter progressed, although the actual level of group occupancy rose each month. The rate of growth is likely to slow further as the year progresses due to more challenging prior-year comparisons.

The growth in group occupancy helped offset softening transient occupancy. Transient travelers fall into the nongroup category and are predominantly guests seeking quicker, short-term stays. Transient occupancy was up 9% in the first quarter but most of the growth came in January and February, helped by the favorable prior-year comparisons. Year-over-year growth in transient occupancy slowed from 21% in January to 2% in March.

Historically, transient demand contributed 65% of total room night demand, while group demand contributed approximately 31%. The group segment’s contribution fell to approximately 20% in 2020 and 2021 but improved to 29% in 2022 and 31% in the first quarter of this year.

Despite RevPAR soaring more than 50% in the first quarter, the metric was merely on par with the baseline from the first quarter of 2019, before the onset of the pandemic. Average daily rates, or ADR, are above pre-pandemic levels, but group occupancy has yet to recover due to lingering softness in some urban destinations plus growth in room inventories since 2019.

Among STR’s top 25 U.S. markets, the Orlando hospitality market reported the highest group occupancy at 40%, double the industry average of 20%. The Orange County Convention Center in Orlando, Florida, is back to pre-pandemic levels of business with strong attendance at first-quarter events such as VMX, the North American Veterinary Community, which welcomed 50% more attendees than previous highs. Shows including Surf Expo and the PGA Show also reported strong attendance, and Megacon, a pop culture fan convention, drew more than 100,000 attendees to the convention center at the end of March.

Phoenix recorded the second-highest group occupancy in the first quarter at 37%, helped in part by playing host to the Super Bowl in February, the same weekend as the annual PGA Waste Management golf tournament. Group occupancy in February averaged 45%, up 50% compared to February 2022 and the highest group occupancy in February among the top 25 markets.

The Super Bowl also drove up prices in the Phoenix hospitality market, with group ADR in February up 46% and transient ADR up 22%. However, the group blocks and price increases associated with the game may have squeezed out some transient demand, as transient occupancy declined 19% in February versus the same month last year. The group segment in Phoenix also benefited from a full MLB Cactus League Spring Training season in March, which was abbreviated last year due to baseball’s lockout. Both February and March group occupancy was within one occupancy point of 2019 February and March metrics.

Reports of strong group bookings through the end of the year suggest the group segment is poised to continue to recover. However, the possibility of a recession could weigh on the segment’s performance in the second half of the year if businesses react to weaker economic fundamentals by reducing expenditures on business travel.