During the current U.S. hotel downturn, it has been painfully clear that the suffering has been shared by properties in each and every chain-scale segment of the industry. Whether you look at the high-end luxury segment or the opposite end of the spectrum in the economy segment, you see occupancy declines of anywhere from 9 percent to 12 percent. However, not all occupancy declines are created equal.

Since the occupancy levels are a function of both the supply and demand numbers, when one looks at the relationship between the two by chain-scale segment, you start to get a picture that a demand recovery has certainly begun in some, but not all segments. The most interesting observation from the results of the past several months is that it appears to give us clues as to the nature of the eventual recovery and which segments are the most likely to experience a rebound the earliest. The dramatic nature of this recent difference can be most clearly seen when looking at seasonally adjusted roomnight demand numbers, not as a percent change to last year, but in absolute terms.

In examining the recent demand trends in the higher-priced segments (luxury, upper upscale and upscale), it’s clear that in the third quarter of this year they have experienced a surge in roomnight demand. For each of these three segments, this key indicator has risen to levels that are either at or just below levels that existed prior to the nightmare that was the fourth quarter of 2008. What makes this turnaround even more dramatic is that it has gone largely unnoticed and ignored by both industry analysts and the industry itself. 

As I mentioned above, this demand rebound has been largely masked by very high levels of supply growth, which have resulted in occupancy levels and percent changes that have resulted in declining numbers very much like the performance of the other chain-scale segments.

Looking at the remaining chain-scale segments (midscale with F&B, midscale without F&B, and economy), the picture is not as good. For each of those segments, absolute demand levels are still significantly below levels achieved a year ago, especially for both midscale with F&B and economy. In those two segments, absolute demand numbers are still declining and have shown no signs of a recovery. Hotels in the midscale-without-F&B category, on the other hand, have begun to report improvement in overall demand, but at levels still well below the peaks of last year.

In prior downturns, the midscale-without-F&B segment was not only the least impacted from a demand standpoint, but the first to recover. It now appears factors such as age and potentially excess supply are beginning to take a toll on the segment. 

If these patterns continue through the remainder of the year, which is by no means certain, then one hopes the reaction by hotels in the higher-end segments, where supply growth numbers will begin to subside dramatically early next year, will begin to capitalize on the demand growth to firm up their pricing.