US, European hotel rates may keep rising, industry executives say

By Doyinsola Oladipo

NEW YORK (Reuters) -Hotel room rates in the U.S. and Europe are rising and may get even more expensive as supply has failed to keep up with demand, industry executives said.

U.S. hotel room supply is barely growing as tighter lending standards from regional banks make it harder for developers to secure funding, even as travel demand has grown after the COVID-19 pandemic. This is helping to sustain higher prices that executives say should have been reached years ago.

“We had robust supply growth over an extended period of time, which did keep rates down,” IHG Hotels and Resorts CEO Keith Barr said at the NYU International Hospitality Industry Investment Conference on Monday.

The number of U.S. hotel rooms increased about 3% in April of 2023 from the same month in 2019. Some 153,000 hotel rooms were under construction in April of 2023, down from a peak of 220,000 in the same month in 2020, according to hotel analytics firm STR.

Supply is not expected to pick up significantly for the next year or two, Barr said.

“It’s just going to support pricing being where it should have been over time, which is great for this industry.”

U.S. hotel rates in May averaged $157.45 a night, up 17% from the same month in 2019. Rates dropped to $73.25 in April 2020 during the pandemic and did not consistently rise above $100 again until March 2021, STR data show.

“Relative to the massive downturn and the shutdown in the industry in 2020, all these rates seem crazy,” Hyatt Hotels (NYSE:) CEO Mark Hoplamazian said at the same conference.

Higher rates, however, may be discouraging consumers from booking hotels. U.S. hotel booking data shows three consecutive months of negative year-over-year growth, according to a note from Michael Tran, a managing director at RBC Capital Markets.

Mid-scale and economy rooms now cost 15% to 20% more than before the pandemic, and the increases are holding, Accor (EPA:) CEO Sebastien Bazin said at the conference.

“For the past 20 years hotel operators were not daring enough to restate the prices of hotel rooms,” he said. “Half of the people booking rooms are not asking for the price. They are saying ‘Give me your best suite.'”

Bazin said Paris hotel rooms in the past six months cost 50% more than in 2019, while prices in London rose 30% during the same period.

“There’s definitely going to be a ceiling,” but the industry has not reached it yet, IHG’s Barr said.