A look at compression nights and the ADR growth cycle

Analysis by Kelsey Fenerty & Matthew Burke

A key granular data aspect with some outsized impacts on aggregate performance is compression nights (nights with greater than 90% occupancy). They occur primarily at the market and submarket levels and are often, though not always tied, to an event. As a subset of total occupancy, smaller markets, busier markets, and event-driven markets will likely report more compression nights.

In this article, we take a look at select markets across the Europe and Asia Pacific regions. Dublin and Sydney are the smallest and third-smallest markets shown, respectively, and also the most compressed markets pre-pandemic.

In many cases, there are fewer compressed nights this year than even in 2023; however, what is most notable is that hoteliers have adapted.

While there may be fewer 90% plus nights in 2024, the ADR premium, or the variance in room rates between nights with 90% plus occupancy and all other nights, is stronger today than it was in 2019, and in many cases still growing.

Compression nights are making up an increasing share of total revenue post-pandemic, and hoteliers are increasingly relying on compression nights to drive rates.

We see this trend in ADR growth as well. Year-to-date room rate growth looks “normal” on nights where occupancy is less than 80%, moderately good between 80-90%, and typically quite strong (relative to the market) when compression occurs.

We know there are fewer high occupancy nights now than in 2019, and those nights are more important than ever to driving rates and growth. So, what’s happening the rest of the time?

Occupancy has been less than 80% for more than half of all 151 nights this year across all markets. That’s a bigger share of lower occupancy nights than in 2019 everywhere except in Rome (mostly due to American travelers).

In London, for example, only 44% of nights year to date in 2019 reported occupancy less than 80%. That share has since jumped to 65%.

The impact on ADR, however, isn’t as pessimistic. For most markets, rate growth on lower occupancy nights is better than it was in 2019, with London and Dublin as exceptions.

The “Southern European superstars” demonstrate this well: in 2019, nights with occupancy less than 80% averaged about 1% ADR growth. That same occupancy level nets 6% ADR growth in 2024.

Additionally, if you break that less than 80% occupancy down a little bit more, the impacts on ADR growth are still very consistent.

The final consideration is going to be the “when” of it all: Are weekend concerts and sports events pushing occupancy over the edge? Or are conventions and conferences filling rooms midweek?

As no surprise, it’s the weekends compressing. What is surprising, though, is that’s a complete reversal of the trend, except for Barcelona and London. Prior to the pandemic, only Barcelona reported a stronger share of compressed nights on weekends.

London is having a challenging year with zero compressed weekend nights year to date. Historically, however, the market has always compressed more on weekdays, likely due to corporate travel coinciding with a healthy MICE calendar topped off with longer-stay international inbound leisure travel. Despite compression most frequently occurring on weekends, it’s the weekdays that get the rates.

This holds true for 2019 and 2023 as well, so it’s not just favorable year-over-year comparisons for weekdays causing stronger growth in 2024 (although that does help).

Another interesting discovery: the actual premium, as in the percent more charged relative to non-compressed nights, is nearly equal across both days of the week and markets.

For most markets, a compressed night yields 30% more than a non-compressed night, but it doesn’t actually matter what day of the week it is. It appears hoteliers might have some number in mind when they’ve got an event or certain level of occupancy on the books, and that number is driven by the forward-looking data and not the day of the week. These trends hold across the occupancy buckets, too.

Rate growth is stronger on weekdays than weekends for most markets at all occupancy levels, and as the premium goes, there’s a much more laddered approach to weekday rates than weekend.

On weekdays, rate increases each time occupancy hits a certain level. Weekends have a lot more volatility, with a major increase in rate occurring once occupancy hits 80%. That fits with more elastic, event-driven leisure travel, where hoteliers are trying to yield to single-night demand drivers.

Conclusion

Compression nights, while fewer and farther between now than in 2019, are doing more to drive rates in 2024 than historically, with year-over-year growth and premiums both outpacing pre-pandemic norms. Below 80% occupancy, rate growth isn’t closely tied to occupancy.

Weekends compress more frequently than do weekdays and have much bigger premiums once occupancy reaches 80%. ADR growth is stronger over weekdays than weekends during periods of compression, although there’s not a clear premium winner in day-of-week analysis.

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