United States hotel pricing trends part 2: Mixed fortunes for America's tourist destinations

It’s a case of pleasure over business for America’s hotels according to our data, as tourism-heavy locations have outperformed cities that rely more on commercial travel when it comes to pricing recovery and occupancy.

Taking some of the top markets in the US and looking at how room rates have developed over the past year, locations such as Las Vegas and Miami are pulling ahead of more business-focused cities like San Francisco and Washington, and this looks set to continue into 2023 as well, with pent-up demand still prevailing.

The US hotel pricing picture so far

Let’s start with how pricing developed through 2022 across 10 major US cities: Boston, Chicago, Honolulu, Las Vegas, Los Angeles, Miami, New York, Orlando, San Francisco, and Washington.

Hotel room pricing recovery in select US cities across 2022

Hotel room pricing recovery in select US cities across 2022 

Looking at wider trends, then it becomes clear that there is a division in the US hotel industry, with cities that are more reliant on business travel and longer-distance arrivals from Asia falling further and further behind cities that are top of mind for Americans (and to a lesser extent European visitors) when they consider their vacation locations.

We will broadly split these into more ‘commercial-focused cities’ and ‘consumer tourism focused cities’ for this analysis. Within this, the commercial cities are:

• Boston

• Chicago

• Los Angeles

• San Francisco

• Washington

And tourism hotspots are: 

• Honolulu

• Las Vegas

• Miami

• New York

• Orlando

Once we put that into an 'absolute price' trendline for each group, as seen below, the difference is just as stark. Plotting out the average lowest actualised price each month compared to 2019 and we can see that not only do commercial cities start in a weaker position, but that their recovery is also progressing noticeably slower, with the gap widening as 2022 progresses.

Average lowest actualised hotel room price for US cities - 2019 versus 2022

We are not alone in this analysis. Bloomberg reported on a piece of research from University of Chicago Harris School of Public Policy professor Justin Marlowe and HVS Consultant Tom Hazinski that came to the same conclusions.

Their analysis, which looked at financial records and hotel surveys in 25 of the largest US cities, found that ‘commercial’ markets were underperforming, with San Francisco and Washington at the bottom for hotel revenue bounce back and tourism-heavy cities dominating the best performers, which matches our analysis of hotel room prices.

What is driving US travel demand?

If we look at our bottom performer in terms of hotel rates, San Francisco, it is facing a perfect storm of a depressed business market, particularly when it comes to the tech sector, a reliance on city break travelers for the domestic market, and major dislocation from what were critical markets in Asia-Pacific.

The situation is similar but less severe for hoteliers in Washington D.C., which is exposed to international demand and reduced commercial travel, which is why it is the second-worst performer for hotel room prices. 

Foreign arrivals to San Francisco International were down 40.2% across 2022, underlining the difficulty in attracting Asia-Pacific arrivals over that year.

However, when we look at the market data for foreign arrivals to airports located across all cities in our sample, we can see that they are down across the board.

Honolulu, for example, saw arrivals fall -73% below 2019 levels, but the location has seen hotel pricing sitting in the middle of the pack in this sample.

Therefore the question is not so much, are international travelers coming back, but more is there enough of a draw for domestic US travelers to compensate for diminished business and short-term travel demand? 

Where this is the case, hotel operators in this location are capitalizing on pent-up domestic travel demand and have been able to consistently raise room rates across 2022.

Will this hotel pricing trend change in 2023?

It’s clear that there is a split in the performance of US hotel markets, but how likely are we to see a continuation of this in 2023?

After all, the conditions this year are dramatically different, with consumers facing higher bills due to inflation and rising interest rates, Asia-Pacific countries seeing much better outbound volumes and business travel rebounding?

The good news is that some of these dynamics are helping to close the gap somewhat.

Taking the remainder of 2023 and comparing that to 2019, hotel prices posted by the commercial destinations in our sample are up between 14.1% and 17.1%, except for San Francisco, which continues to be a spectacular outlier. There, prices are still -2.7% below pre-pandemic levels.

For the remainder, this is not far behind the likes of Honolulu (18.8% up) and New York (up 20.3%) and indicates a relatively solid demand floor being projected by hotels across the US.

Average advertised hotel room price for US cities - 2023 versus 2019

Nonetheless, there remains a marked difference between these two groups, with plenty of catching up still required in the poorer-performing group. This is partially from the fact that tourism-focused destinations have had a better 2022, putting them in a stronger starting position to open the year, but also that American travelers continue to prefer these destinations in 2023.

Focusing on the best performers last year, the same outlook is emerging this year, as Miami and Las Vegas clearly lead the selection of cities for room rate performance.

As we noted in our first US pricing blog post, Vegas is the center of March Madness and also home to the Electric Daisy Carnival. These are giving a huge boost to the demand profile of the city, and consequently to the pricing potential of rooms.

Miami too will host major events in 2023, and the reason these locations are pulling ahead of their peers is that these are true destinations for American leisure travelers, offering a mix of powerful draws year-round.

As well as major festivals and sporting events that push profitability significantly higher at multiple points throughout the year.

On the reverse side, business demand continues to be slow to recover and international tourism, as we have seen from arrival figures, lags behind pre-pandemic levels, although it is progressively returning.

This makes it all the more crucial to maximise spikes and high points in demand for every location and increase RevPAR, which is where a suite of market and rate intelligence solutions can make a real difference to your revenue management and pricing strategy.

You can get a real-time, 360-degree view of your property and your market with the hospitality and travel industry's leading rate shopping tool so you can make more informed pricing decisions.