Hotel Rates Are Projected To Keep Rising in US and Europe

Amid a summer that was widely expected to be extremely busy, it should be no surprise that hotel room supply is not keeping pace with demand.

The supply versus demand challenges are now amounting to bad news for travelers—higher prices. Hotel room rates in both the United States and Europe are steadily increasing and are likely to get even more pricey, according to report from Reuters that’s based on insights from hotel industry executives.

In the United States in particular, hotel room supply has remained largely static thanks to tighter lending standards from banks, which is making it challenging for developers to proceed with projects.

“We had robust supply growth over an extended period of time, which did keep rates down,” IHG Hotels and Resorts CEO Keith Barr said at the NYU International Hospitality Industry Investment Conference on Monday, according to Reuters.

U.S. hotel room inventory grew by about 3 percent in April of this year from the same month in 2019, according to Reuters. As of April, about 153,000 hotel rooms are under construction. That figure represents a significant decline from the 2020 peak of 220,000 rooms, according to hotel analytics firm STR.

Further exacerbating the current situation? It doesn’t look as if supply is going to improve significantly at least for the next year or more.

At the same time, growing numbers of Americans are planning to stay in hotel rooms. As TravelPulse reported in May, the latest data from the American Hotel & Lodging Association’s Hotel Booking Index found that American adults are more likely to stay in a hotel (56 percent), take more frequent (55 percent) and longer (52 percent) leisure trips this year.

So what does it all mean for prices? In May, the average nightly cost for a hotel room was $157. That’s up 17 percent from the same month in 2019. (During the height of the pandemic, rates dropped to about $73.25 in April 2020.) It took until March 2021 for rates to even get above $100 again.

“Relative to the massive downturn and the shutdown in the industry in 2020, all these rates seem crazy,” Hyatt Hotels CEO Mark Hoplamazian said at the same conference, according to Reuters.

The nightly price-tag for mid-scale and economy rooms is now some 15 percent to 20 percent higher than prior to the COVID-19 outbreak.

In Paris, meanwhile, hotel rooms over the past six months have cost a whopping 50 percent more than in 2019. London visitors are also likely to be experiencing sticker shock. Nightly hotel room prices there are up 30 percent.

“There’s definitely going to be a ceiling,” but the industry has not reached it yet, IHG’s Barr said.