HOTEL CURRENTS™ | Hotel Markets Recover, Then Expand, Then What?

​August 25, 2016, by Jack Corgel, Ph.D.

The economics profession looks to the National Bureau of Economic Research (NBER) for business cycle dating, particularly to peg the beginning and ending dates of U.S. recessions. In the vernacular of the NBER, a complete business cycle (i.e., peak to trough to peak) has two phases: contraction and expansion. This unambiguous definition of the business cycle is not detailed enough for some expositions, so detail is added, usually to the expansion phase. The diagram below from exemplifies this kind of specification; as is often the case; an expansion period follows a completed recovery period.

The line of demarcation between recovery and expansion isn’t always useful for assisting market participants in making capital allocation and other business decisions. At the expense of picking on, their steady growth line in the chart above represents “the growth of the economy when there is no business cycle.” When is that? A potentially more meaningful delineation of recovery and expansion comes from a recent report produced by John Silva’s economics group at Wells Fargo Securities (2016), which marks the end of recovery and beginning of expansion occurring when real GNP rises past the pre-recession peak. I introduce a variant of this definition here to provide a snapshot of U.S. hotel market conditions in Q2 2016.

Hotel Market Segment Recovery and Expansion

Real GNP is to the economy as real RevPAR is to the hotel markets. Hence, market-by-market analysis of real RevPARs from their respective troughs, which intermittently occurred throughout 2009 and 2010, until Q2 2016 conveniently summarizes how far hotel markets progressed through the current cycle. For the overall U.S. hotel market, the most recent trough reached its deepest level during Q4 2009 when real RevPAR fell to $53.20 from a peak of $81.89 in Q3 2007 (real RevPAR is expressed in constant Q2 2016 dollars). In Q3 2014, real RevPAR reached its highest historical peak and expanded to $86.33 by the end of Q2 2016. The experiences of upper-price and lower-price hotels are as follows:

  • Lower Price: previous peak RevPAR (Q3 2007) = $59.60, trough RevPAR (Q4 2009) = $35.48; recovery period starting Q3 2014, RevPAR as of Q2 2016 = $59.95.
  • Upper Price: previous peak RevPAR (Q2 2007) = $132.55, trough RevPAR (Q4 2009) = $90.29; recovery period starting Q1 2015, RevPAR as of Q2 2016 = $135.58.
Note that lower price includes the STR chain scales of “economy, mid-price, and upper mid-price,” and that upper price includes the chain scales of “upscale, upper-upscale, and luxury.” Independent hotels are not included here. Using the recovery/expansion delineation proposed above, the STR data indicate expansion among upper-price and lower-price hotels is quite recent.

A detailed look at the chain scale segments along with an independent hotel category is provided in Figure 2. For all of these subdivisions, real RevPARs are expanding, except the midscale and economy segments’ RevPARs, which remain 2% and 3% below their highest historical peaks, respectively.

Cities Moving Through the Cycle Like a Slow Train

As shown in Figure 3, some cities have well surpassed the recovery benchmark and are in strong expansion modes. Both San Francisco and the emerging regional center of Nashville recorded real RevPAR during Q2 2016 more than 30% above their previous peaks. The real RevPAR of second-tier cities Tucson, Newark, and Omaha as well as Phoenix remain distant from their previous peaks. Note that energy industry cities Houston and Pittsburgh, also New York, reached their respective highest historical real RevPAR peaks and subsequently slid into a contraction or recession state.  

A Progress Report

Adding observations by aggregating data has statistical benefits, but also may reduce understanding of underlying behavioral relationships that comes from analyzing micro-level data. Aggregation bias may be summarized as the problem of macro parameters deviating from the averages of the component micro parameters (Theil, 1954). The progress of the hotel markets during the past six years through recovery and into expansion appears impressive in the aggregate. Nevertheless, the midscale and economy segments remain in recovery territory and 23 of the 59 city markets evaluated here have not reached the expansion phase and three are contracting. The range of city real RevPAR from 40% above to 30% below previous peaks lends credence to the saying “all hotel markets are local."

In this report, written nearly eight years since bankers at Lehman Brothers and Bear Stearns walked the Earth, I grade the progress of the U.S. hotel market as a ‘B.’ RevPAR results from the first half of 2016 suggest a pause in proclaiming a universal march toward expansion. Monthly data from STR indicate that six of the top 25 city markets in the U.S. recorded nominal declines in RevPAR through June 2016, and another three city markets experienced RevPAR gains at or below the rate of inflation. Concurrently, Los Angeles RevPAR is up 13.7% this year. The U.S. hotel markets are demonstrating a different sort of income inequality than we are used to hearing about.


  • Theil, H. (1954). Linear Aggregation of Economic Relations. Amsterdam: North Holland.
  • Wells Fargo Securities (2016), Predicting the Probability of Recession and Strength of Recovery: An Ordered Probit Approach. Economics Group Special Commentary, June 19.


Bram Gallagher, Ph. D., Economist with CBRE Hotels’ Americas Research, provided valuable assistance in the preparation of this report.


​​Jack Corgel, Ph.D.
​​Managing Director, CBRE Hotels’ Americas Research
​Professor of Real Estate at the Cornell University School of Hotel Administration