US tops budget hotel market supported by an increase in average daily rate

In 2018, the US reported the highest revenue in the budget hotel market worldwide, followed by the UK. Revenue increased by 3.5% year-over-year (YOY) in the US, mainly due to an increase in average daily rate (ADR), which is expected to grow at a compound annual growth rate (CAGR) of 2.7% between 2018 and 2023, according to GlobalData, a leading data and analytics company.

GlobalData’s latest report, ‘Global Budget Hotels Market to 2023’, reveals that cost-focused disruptors such as OYO will drive future demand. The use of its unique business model, which utilizes data analytics and dynamic pricing to predict and create consumer demand, has excelled its growth. This kind of tech-focused strategy may become increasingly adapted as the trend of big data accelerates within the lodging sector. 

Ralph Hollister, Travel and Tourism Analyst at GlobalData, comments: “OYO rolled out its first Townhouses in 2019 on US soil. There is great opportunity for expansion in the US due to the size of the nation and its variation of customer types. However, the US lodging market is highly saturated and fiercely competitive, meaning that OYO needs to maintain a gradual growth strategy to gauge the markets reception to its offerings.”

The budget hotel market in the UK is estimated to generate total revenue of US$13.9bn by 2023. Branded budget hotels accelerated growth in the UK. Total revenue and revenue per available room (RevPAR) were up 8.8% and 3.2% YOY respectively for Travelodge in its 2018 end-of-year report. In terms of revenue, the UK was the second largest market for budget hotels in the world in 2018. As far as the ‘number of rooms added’ is concerned, budget hotels surpassed all other categories.

Hollister continues: “Growing demand for budget hotels in the UK can be mainly attributed to uneven travel trends and a decline in disposable income levels. This is due in part to Brexit uncertainty surrounding the conditions under the UK leaving the EU.

“Budget boutique hotels have become a favorite among business travelers with a shift in their preference to spend less money without compromising on the amenities and quality which they have come to expect.”

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