- U.S. hotel RevPAR rose 7.1 percent.
- Luxury hotels recorded 11.9 percent RevPAR growth.
- Las Vegas was the only declining top 25 market.
RevPAR was up 5.6 percent for the year through September. Growth varied by month, rising 8.3 percent in July, 2.1 percent in August and 11 percent in September. The World Cup helped hotel performance in July, while changes in the holiday calendar lifted September results.
Occupancy adds to room rate growth
Occupancy increased 2.7 percent to 67.7 percent in the third quarter. ADR rose 4.3 percent to $168.50. Room rate growth had accounted for much of the industry's gains in the first half of the year. In the third quarter, more occupied rooms also helped lift RevPAR. Demand increased 3.1 percent to 356 million room nights, while room supply grew just 0.4 percent to 526 million.
Business travel also supported hotel demand during the week. Midweek RevPAR rose about 9 percent. Luxury hotels had the highest RevPAR growth among chain scales, at 11.9 percent for the quarter and 13 percent in September. Economy hotels recorded a 4.5 percent increase, their strongest quarterly growth since the second quarter of 2022.
New York occupancy reached 87.5 percent. Photo credit: iStock
Large cities recorded some of the biggest gains. Washington, D.C., had the highest RevPAR growth at 17.8 percent, followed by Philadelphia at 17.5 percent and Chicago at 15.6 percent. America250 celebrations brought more demand to hotels in Washington and Philadelphia. In July, RevPAR rose 20.7 percent in Washington and 26 percent in Philadelphia. Growth in both cities is expected to slow in the fourth quarter as demand from these events declines.
New York recorded RevPAR of $320, up 11.4 percent, while occupancy reached 87.5 percent. Las Vegas was the only one of the top 25 U.S. hotel markets where RevPAR fell. It declined 4.6 percent as occupancy dropped 5.9 percent.
Rising costs put pressure on hotels
Higher room revenue has not removed the cost pressure on hotel owners. Owner sentiment remained below neutral and nearly half of owners pointed to rising operating costs as a reason they were not seeing the full benefit of revenue growth.
Hotel developers are also finding it harder to secure loans for new projects. Construction and bridge loan rates are around 8 percent to 10 percent or higher, while many lenders now favor larger branded hotels in markets with clear demand. This leaves fewer financing options for smaller projects and developers who do not meet lenders' requirements.
Hotel owners face cost pressures despite stronger investor returns.Photo credit: iStock
Lodging and resort real estate investment trusts recorded stronger returns for investors. They gained 37.6 percent through September, compared with 7.9 percent for the broader equity REIT market. They were also the only property sector to record a gain in September, returning 0.7 percent despite rising Treasury yields.
Higher occupancy can bring in more room revenue, but rising expenses are making it harder for owners to increase their profit margins. C&W expects margin growth to remain slower than revenue growth into 2027.
U.S. extended-stay hotels recorded their strongest monthly gains in years in September, with demand rising 7.8 percent and room revenue increasing 12.9 percent. Demand outpaced supply for the eighth consecutive month, while occupancy, ADR and RevPAR also posted their largest increases in several years.
