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Atlanta Hotel Market Hits The Brakes

Metro Atlanta hotels experienced a drop in occupancy, room rates and revenues in the first quarter as inflation began to take a bite out of consumers' wallets.

The hotel business slowed to start 2024.

The region's 114,200 hotel rooms were 62.8% occupied on average in the first three months of the year, down from 65.7% in the same period in 2023, according to STR data compiled by Colliers.

Hotel rates suffered as both business and convention travel declined, a trend that began in May 2023, according to Colliers. Leisure travel, which has been shrinking nationwide, continued a downward trend since November, Colliers Research Manager Jonathan Koes said in the first-quarter hotel report.

Revenue per available room dropped 5.2% year-over-year from nearly $90 to $78, and the average daily room rate in the region dipped by 1% to a little more than $124 per night, according to the report.

Atlanta's slowdown is a reflection of national trends. RevPAR declined in the U.S. in March for the first time since February 2021, according to STR. National occupancy dipped by more than 2% to 63.7%.

The drop in hotel stays is a sign that inflation is impacting Atlanta’s hotel demand, hospitality industry experts said.

“When it’s nationwide like that, that’s usually pure economics. It’s just inflation that is causing people to shave a little to make up the difference,” said Paul Breslin, managing director for the hotel consulting firm Horwath HTL. “It’s definitely going to be a bumpy road in ‘24.”

The rising cost of goods and services caused the financial situation of 65% of American households to worsen in 2023 compared to a year earlier, according to the Federal Reserve’s Economic Well-Being of U.S. Households report. On top of that, 19% of those surveyed said price hikes from 2022 made their financial situation much worse in 2023, according to the Fed survey of more than 11,000 adults.

Inflation has also impacted hotel operations directly, with increased pressure on operating costs, especially wages, which hit a record last year, according to a recent American Express study. Rising costs are forcing some hotel operators to limit the number of rooms being offered on a given night in response to staffing shortages, attempts to reduce overhead and the preservation of overall room rates, according to the report. 

Breslin said travelers are not only cutting back on the number of nights in hotel rooms but also turning to alternative lodging options like Airbnb.

“We have seen a spike in alternative lodging, like in campgrounds and the cabins in campgrounds,” he said. 

Atlanta-based hotel investor Noble Investment Group’s portfolio is seeing occupancy in the mid-60% range on average, with lower-tier hotels slowing the most, CEO Mit Shah said. Shah said hotels in the Central Perimeter submarket have been particularly impacted by the continued hybridization of office work and the construction of the Interstate 285-Georgia 400 interchange — a key gateway into the submarket.

New hotel stock is also adding pressure to the bottom line in Metro Atlanta. Coming off a record delivery year of more than 2,500 new rooms — including the Signia by Hilton Atlanta hotel at the Georgia World Congress Center and its more than 970 new rooms — another 3,000 units are under construction in Metro Atlanta this year, HVS reported, citing STR data.

“I’m always concerned about supply in Atlanta because if you give money to a developer to build something, they’re going to build,” Shah said. “It’s going to be bumpy over the next couple of quarters.”  

The Georgian Terrace hotel, owned by Sotherly Hotels, saw improved group performance in the first quarter.

CBRE hotel forecast projects that despite “softer demand, stickier inflation and high interest rates,” travel should rebound in the second quarter, pushing U.S. RevPAR up 3% in 2024, Hotel Dive reported.

“Obviously, I think inflation has had its impact. But I think it’s going to rebound,” said Nexera Capital founder and CEO Pete Patel, who is developing a Moxy by Marriott hotel in Downtown Atlanta. “For us, we’re forecasting 2% to 3% growth for the year, and that’s going to come through rate.”

Luxury hotels in Metro Atlanta have risen above the sluggishness. Upper-tier hotels, the top 25%, based on average room rates, maintained their rates, revenue and occupancy in the first quarter, according to Colliers. Some of that is because of a rebound in business travel.

The 326-room Georgian Terrace hotel in Downtown Atlanta saw corporate and association business increase by 25% in the first quarter, according to its owner, Sotherly Hotels.

“The continued strength of our group-focused hotels was coupled with a long-awaited breakthrough in business transient performance at our slow-to-recover urban hotels in Atlanta and Houston during the first quarter,” Sotherly Chief Operating Officer Scott Kucinski said during a May 9 earnings call.

“In addition, the potential for recovery in the film industry business segment presents additional growth prospects moving forward.”