Conventional wisdom says that high-end resort hotels are more vulnerable to economic recessions because of the discretionary nature of leisure expenditures. This wisdom rang true when we reviewed how upper-tier resorts performed during the recent recession and found how much more they suffered in 2008 and 2009 compared to the average U.S. hotel. Since then, however, we have observed a strong bounce back in resort occupancy levels, which should allow for significant increases in average daily room rates (ADR) going forward.
To better understand the market performance of U.S. resorts, PKF Hospitality Research analyzed some Class C resort data provided by Smith Travel Research (STR). STR defines Class C resorts as a destination resort with a full scale of facilities to attract and retain vacationers. In 2012, this sample of 307 resorts averaged 501 rooms and achieved an average occupancy of 65.3 percent and an ADR of $175.74. We ran this data through our own econometric forecasting models to project the future performance of this type of resort for 2013 through 2017.
According to data from STR, the long run average (LRA) occupancy level among Class C resorts from 1998 through 2012 is 66.6 percent. The LRA change in ADR during the same period is an annual increase of 3.5 percent, yielding an LRA revenue per available room (RevPAR) increase of 3.5 percent annually. Peak occupancy among Class C resorts during the past 10 years was achieved in 2007 at a level of 67.1 percent.
Accommodated demand, as measured by the number of occupied rooms, decreased 5 percent in 2008 and 8.9 percent in 2009 as the recession crippled travel, particularly in the leisure and group meeting segments. Similar to other hotels across the United States, the demand for Class C resorts began to recover in 2010 and has grown at a compound annual rate of 3.6 percent through 2012. Year-end 2012 occupancy was 65.3 percent.
Peak ADR in the last 10 years among the sample of Class C resorts was $183.40 in 2008. Again, most hotels across the country saw decreases in ADR in 2009 and into 2010, and the resort segment was no exception. ADR declined 10.5 percent in 2009 and 2.5 percent in 2010 before seeing increases of 4.4 percent and 4.5 percent in 2011 and 2012, respectively.
These changes in occupancy and ADR resulted in significant swings in RevPAR, with the largest decrease occurring in 2009 at a rate of negative 18.4 percent. Since then, however, RevPAR has increased at or above the LRA annual rate of change. RevPAR for the sample of Class C resorts was $114.76 in 2012, still roughly $9 below the previous peak RevPAR of $123.55 in 2007.