Rates are declining at budget hotels, but that doesn’t mean widespread bargains

Travelers this summer might not be experiencing any major discounts when they go to book a hotel room in the U.S., but there is a softening in some segments of the market.

However, it's a little premature to celebrate the idea of any oncoming bargains.

Hotel data firm STR this month revised its forecast for the remainder of this year to downgrade expected average daily rate gains in light of softer-than-expected hotel performance in the U.S. so far this year. But the weakening hotel rates aren't being felt everywhere.

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"We have seen a bifurcation in hotel performance over the first four months of the year, which we don't believe will abate soon," Amanda Hite, STR president, said in a statement. "The increased cost of living is affecting lower-to-middle income households and their ability to travel, thus lessening demand for hotels in the lower price tier. The Upscale through Luxury tier is seeing healthy demand, but pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions. Travel remains a priority for most Americans, but the volume has lessened as prices on goods and services continue to rise."

Economy-priced hotels are showing some of the biggest rate drops in the industry, with nightly rates declining 2% within the market segment over the last 28 days. Comparatively, upscale hotels (brands like Aloft and DoubleTree) and upper upscale hotels (brands like Westin and Hyatt Regency) saw rates increase by 1.9% and 2.6%, respectively, in the same time frame.

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The downward revision for potential hotel rates complements this week's inflation data, showing U.S. hotel rates declined 1.7% from a year ago — a major reversal from the coronavirus pandemic recovery when hotel rate increases were a leading driver of overall inflation.

Keep in mind that while STR isn't as bullish on hotel rate gains this year, the company is still projecting U.S. hotel rates to rise 2.1% for the year and another 2% in 2025 — roughly in line with what economists see as ideal inflationary figures for the U.S. economy.

Further, even some softening in the luxury hotel sector doesn't necessarily mean the average leisure traveler is going to get a bargain when checking into a Four Seasons or St. Regis. But there is a glass-half-full view here: Part of the rate softening in luxury hotels is due to business travel finally recovering from the pandemic. This means the return of special corporate rates, which are negotiated and less than the average daily rate charged to most travelers.

Of course, that doesn't necessarily help the average traveler looking to enjoy a high-end hotel stay without breaking the bank.

"The [average daily rate] for luxury hotels looks like it's lower, but that does not mean that you or I pay less as leisure travelers," said Jan Freitag, national director of hospitality analytics at STR's parent company CoStar. "Our rates are going to continue to go up. It's just that, the way the data gets reported to us, the mix is different because we have more corporate transient in there."

Yay for business travel finally coming back following the pandemic. Not-so-yay for our wallets ... unless you're checking into a more budget-friendly brand.

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