During the pandemic, residential and commercial property prices in the central business districts (CBDs) of large metropolitan areas (MSAs) declined while prices generally increased in suburban areas. Many businesses located in CBDs that were dependent on residents, commuters, and tourists either ceased operations or relocated to the suburbs, often within the same MSA.

Redistribution of Large City Hotel Businesses

Despite the reports of business closures and relocations away from the centers of large U.S. cities, hard empirical evidence is scarce regarding CBD business conditions before and after the office occupancy weakness caused by work-from-home policies and increased frequency of headlines about retail crimes.

Hotels, restaurants, bars, and retail stores comprise most of the current downtown business activity. For hotels, the CBD submarket has long been the most important MSA lodging submarket, due to strong demand from business travel and tourism in these areas. The pressures on both these demand segments since 2020 have likely affected CBD hotel performance more negatively than that of suburban hotels.

This article reports on the findings from a comparative analysis of hotel financial performance before and after the pandemic period in CBD submarkets, adjacent submarkets, and outlying submarkets of large MSAs. The findings indicate that CBD submarket RevPAR weakened relative to non-central city submarkets in more than one-half of the MSAs studied, likely due to relocations of economic activity.

Study Design

The study design involves segmenting the past six years into two periods. Period One (pre pandemic) includes the six quarters from Q2 2018 through Q3 2019 and Period Two (post pandemic) the six quarters from Q2 2023 through Q3 2024. The three years between 2020 and 2022 were intentionally left out of the study, to avoid capturing temporary hotel closures during that time. The RevPAR averages of quarterly data during the two periods are utilized to account for seasonal variation. How the significant rise in inflation over the past six years affected RevPAR growth is addressed below.

The geographic sample includes the 13 MSA markets in the continental U.S. with the most hotel rooms.1 The MSA hotel market is divided into three types of submarkets – CBD, adjacent to CBD, and outlying MSA. Comparisons are made using the average hotel RevPAR for each period and submarket type. The RevPAR come from the CBRE Hotels Research Hotel Horizons™ database constructed with Kalibri Labs quarterly data.

1. The MSA markets in descending order by number of hotel rooms as of late 2023 are, Orlando (165,536), New York (121,681), Chicago (119,991), Atlanta (104,450), Los Angeles (103,208), Washington DC (99,130), Dallas (98,120), Houston (92,891), Phoenix (70,089), San Diego (65,754), Miami (65,069), Boston (58,529), Denver (54,671), Nashville (53,853), and San Francisco (53,786). Due to the proximity to Los Angeles, Anaheim is excluded, and San Francisco is the replacement. Also, Orlando and Denver were removed from the sample. Orlando’s CBD has very few rooms and the data for some outlying submarkets in Denver are incomplete.

How Hotel Submarket RevPAR Changed

The average number of hotel rooms across the sample of 13 MSAs is well-balanced among the three submarket location types at about 30% each. However, in some MSAs, the percentage of all hotels in the CBD submarket exceeds 50% (New York, Chicago, Miami, and San Francisco) while in others this is less than 20% (Atlanta, Los Angeles, Dallas, Houston, and Phoenix).

The extraordinary inflation rate from 2018 to 2024 (i.e., over 20 percent according to BLS data) could invalidate some conclusions from analyzing nominal RevPARs. Yet, all the MSAs were affected in nearly the same way. Consequently, nominal changes are shown here. Analysis of nominal RevPAR shows the relative directions of pre- and post-pandemic changes in each market area which aligns with the study objectives.

Figure 1 presents findings from comparing submarket RevPAR performance in the 13 MSAs from Period 1 to Period 2.

Figure 1: Changes in Large MSA Hotel RevPAR by Submarket Location, 2018 to 2024

— Source: CBRE Hotels— Source: CBRE Hotels
— Source: CBRE Hotels

— Source: CBRE Hotels— Source: CBRE Hotels
— Source: CBRE Hotels

— Source: CBRE Hotels— Source: CBRE Hotels
— Source: CBRE Hotels

Notes: Two of the 15 markets were removed from the sample. Orlando's CBD market has an extraordinarily small number of rooms. The Denver outlying submarket data are incomplete.
Sources: CBRE Hotels Research, Hotel Horizons®, Kalibri Labs.

The following observations come from an examination of the far-right section of the figure:

  • The average submarket RevPAR changes for 13 MSAs are CBD = 5.3%, Adjacent = 10.8% and Outlying = 13.8%.
  • All MSAs except San Francisco experienced RevPAR growth across all or most submarkets (recall these are nominal dollars after several years of rapid inflation).
  • In Dallas, New York, and Phoenix, RevPAR growth was comparable in all three submarkets.
  • In Atlanta, Los Angeles, and San Francisco, CBD submarket RevPAR change was negative.
  • In five (Boston, Chicago, Houston, San Diago, and Washington, D.C.) of the 13 MSAs. the CBD submarket RevPAR grew, but by considerably less than adjacent and outlying submarkets.
  • In two MSAs, Miami and Nashville, the CBD submarket outperformed either the adjacent or outlying submarket.

Conclusion

The hotel markets in large American cities were not spared from the geographic adjustments of businesses and households during the pandemic period. RevPAR in the CBD submarket remained the highest in absolute terms, but underperformed relative to adjacent and outlying submarkets. In most MSAs studied, CBD submarket RevPAR were negative or slightly positive, while the other submarkets experienced substantial growth. Whether these trends continue throughout this decade depends on several factors, including the policies of CBD businesses limiting remote work becoming more widespread, and effective measures are taken to ensure safe working, living, and visitation environments.

Acknowledgement: Hogan McDade provided invaluable assistance in the preparation of this article.

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