Washington, D.C. Hospitality Market Outlook

Hospitality properties face a particularly challenging road to recovery in Washington, D.C. The Central Business District (CBD) submarket’s hotel demand historically has been driven primarily by business travel and tourism. Utilization of office space has failed to rebound significantly to pre-pandemic levels, as employers struggle with lagging square footage needs driven by increased remote work. This has resulted in the local lodging market’s continued struggle to return to pre-pandemic financial heights.

One key indicator is the prior 12-month revenue per available room (RevPAR) figure, which was a modest $148.08 by December 2022, as compared with a high of $171.66 in February 2020. Occupancy has slowly begun to inch towards late 2019 and early 2020 levels, reaching approximately 61% at the end of 2022. The average daily rate (ADR) has significantly lagged in its rebound, resulting in the paltry RevPAR figures.

Despite overall economic improvements since early 2021, as of year-end 2022, Washington, D.C. still ranks as the third worst-performing market across Smith Travel Research’s top 25 domestic markets. As a result, transaction volume remains anemic. Further, price per key in that limited sample still greatly lags pre-pandemic highs.

The return of business travel, downtown office usage, and international tourism will be crucial components of the market’s recovery; historically, these factors comprised >40% of overall demand. The correlation between office use and midweek occupancy is especially strong in the DC market because this market employs a greater share (than national averages) of industries that have utilized more lenient remote work policies. As of late January, office utilization in DC reached a weekly average of 45%—a significant drop from the pre-COVID-19 average of nearly 99%.

In addition to a somewhat unenthusiastic employee desire for in-person work and the correlated lag in business travel, there are growing concerns surrounding inflation indicators and potentially overleveraged office ownership interests. Considered together, there are many uncertainties about the stability of the DC office market in the coming 12 to 18 months. These tangential office market patterns are likely to continue to be major burdens for near-term CBD lodging market recovery.

Simultaneously, hotels continue to endure inflated operating costs thanks to various macroeconomic conditions. Inflation pressures, labor shortages, and residual pandemic effects threaten the profitability of the asset class moving forward. Pessimistic bottom-line projections, combined with an uncertain economic environment, compound the tenuous recovery outlook. With full DC hotel market recovery still underway, it is more important than ever for taxpayers to carefully examine fair market value estimates provided by the Office of Tax and Revenue to ensure that no overage tax is paid. Tax year 2024 assessments (with a valuation date of January 1, 2023) are now available. See where your hotel’s assessment ranks here.

Ryan’s Local Hotel Property Tax Experts Can Help

Ryan represents more than ­­­$3.5 billion of the hospitality properties in Washington, D.C. and $70 billion nationwide. As a property owner or operator with assets in DC, have you considered all appropriate possibilities for minimizing your properties’ assessed values and the corresponding taxes?

Ryan’s Washington, D.C.-based team can help. With the largest property tax practice in the world, we offer unmatched access to competing market data as well as tenured local experts to help ensure you pay no more than your fair share of property tax.