Vacancy rates for luxury properties are soaring across the US, as hotel chains scramble to find a way to make up for declining revenues.
The trend is the latest indication of the tightening economic environment that has left hotels and other lodging chains struggling to cope with a drop in guests.
While some luxury hotels have experienced strong growth in recent years, many others have struggled to keep up with the pace of growth in the consumer market.
In January, hotel owners reported a loss of more than $1.3 billion on revenue of $9.4 billion, according to a report by the National Association of Realtors.
That’s an increase of more that 25 per cent from a year earlier.
The NAR estimates that the industry lost $1 billion in 2016, down from $2.6 billion a year ago.
And the average hotel occupancy rate in the US rose from a high of 10.6 per cent in 2009 to 12.3 per cent last year.
The occupancy rate at luxury hotels fell from 11.9 per cent a year before to 11.3 a year later.
Meanwhile, luxury hotel occupancy rates fell at the rest of the industry, according a recent study by brokerage Apartment List.
That was especially true for condos, where the rate dropped to 4.5 per cent, a steep decline from the 6.9 percentage point increase the industry saw in occupancy a year after the financial crisis.
The luxury hotel industry has also been hit by an influx of millennials, who are spending a larger share of their disposable income on rent than they did a decade ago.
In 2016, the average millennial made more than three times the average rent in the industry.
That could lead to a dip in occupancy rates, according Apartment Guide, which tracks hotel occupancy trends.
And while the rental industry is recovering from the Great Recession, occupancy rates at the luxury hotels are expected to continue to drop.
Hotel occupancy rates have been steadily declining in the past decade.
In 2015, hotel occupancy dropped to 11 per cent.
But the number of hotel rooms has risen since then, climbing from 5.3 million in 2009, to 8.3 and 9.4 million in 2020 and 2021, respectively.
The industry has had to respond to a variety of challenges in recent decades, including the financial downturn, which resulted in an increase in the cost of lodging, according an NAR report.
The industry was also facing a decline in guest usage, which prompted hotels to restrict outdoor seating.
Hotels are also having to adjust their occupancy rates as hotel occupancy is rising, which makes them more expensive than they were a decade or two ago.
But a number of factors have contributed to the industry’s struggles.
In 2015, there were more than 3.6 million hotels in the United States, according the National Restaurant Association.
That number has been falling in recent months as occupancy rates in major cities like New York have risen.
In November, hotel stocks surged as investors cheered the industry and executives saw a strong earnings performance.
But as the market’s momentum has slowed, the industry has been hit with a string of bad news.
In May, hotel operator Marriott reported a $1 million loss, the biggest loss in the hotel industry’s history.
And last week, the company announced it was cutting jobs.
As a result, the occupancy rate of hotels has dropped to a low of 12.4 per cent as of the third quarter of this year, down about 2.5 percentage points from the same time last year, according data from the National Alliance for Realtor.
“It’s tough on a lot of hotel owners,” said Mark Reuss, the chief executive officer of the Reuss Group, a real estate investment company.
“They’ve got to be making some tough decisions and make some difficult decisions to keep their businesses afloat.”
The occupancy rates are particularly troubling to luxury hotel owners because the industry relies heavily on millennials to fill rooms, said Reuss.
That means they will likely be affected by lower occupancy rates.
In fact, Reuss said occupancy rates could fall as low as 10 per cent at some hotels.
The hotel industry is also facing some challenges from a growing number of other industries, including agriculture and manufacturing.
Industry groups say that the downturn is a good opportunity to invest in new technologies and better management practices that could reduce hotel occupancy.
“We need to understand that a lot is at stake,” said Reussell.
“And that’s what the hotel companies are trying to figure out.”