Influx Of Tourists To D.C. Provides Much-Needed Boost To Hotel Market, Tax Revenues

Tourism to the nation's capital hit new records in 2023 and continues to grow this year, leading the city's hotel market to emerge as a national leader in the recovery from the pandemic. 

The hospitality recovery came to the city later than most of the big U.S. hotel markets. But the fast-growing D.C. hotel market is now providing a bright spot for the city's economy that is sorely needed as the city faces hundreds of millions in lost tax revenue from the deteriorating office market. 

The District saw record tourism numbers in 2023. Visitors to D.C. totaled nearly 26 million, up 17% from the prior year and surpassing prepandemic levels for the first time, according to tourism agency Destination DC. The traffic generated $10.2B in spending and $2B in tax revenue, both records for the city.

This surge in tourism pushed D.C.'s hotel market to No. 1 in the country last year in revenue per available room growth, a key hotel metric, according to hospitality research firm STR.

The positive trajectory has continued this year, albeit at a slower pace, as the District isn't leading the nation in 2024 RevPAR growth but cracks the top 10, according to STR data shared at Destination DC’s annual Marketing Outlook Meeting Tuesday. 

Three D.C. hotel owners told Bisnow their properties are seeing performance improve year-over-year, adding they see promising signs in the business and international demand segments that show them the growth will continue. 

“It's starting to feel like it was in 2018 where it was just every year growing. People visiting, doing business, shows and the like,” said hotel owner Geoffrey Griffis, the managing member of CityPartners. 

CBRE predicts the D.C. metro area's RevPAR growth will be 4.9% this year, while the average among the top 25 U.S. markets is projected at 1.7%. 

“There's some really interesting things that are happening in D.C., and it's very good,” STR President Amanda Hite said at the Destination DC event. “This is a different type of presentation that I would do in another market today. D.C. has done very well this year.”

D.C. has seen occupancy growth every month of the year, she said, adding that “we don't see that in a lot of other markets.”

City officials are looking to capitalize on the hospitality market’s positive momentum to help generate more tax revenue and bolster the city's economic health. The city has major demand drivers like the presidential inauguration coming soon, and D.C. is launching a marketing push through the Only One DC ad campaign. 

D.C. is advertising at the U.S. Open Tennis Championships through Sept. 9, Destination DC announced at the event. It boasted that D.C. is the only city using the event to promote itself to a global audience, and the campaign is expected to reach 200 million potential visitors.  

“DC’s comeback is about bringing more people to DC, because more people in our city means more jobs for our residents, more revenue for our services and programs, and more opportunities for our city. And that’s why tourism is so important,” Mayor Muriel Bowser said in Destination DC’s press release.

But officials see a lot more runway for the hospitality market in the pipeline.

“I think sometimes our stakeholders say, ‘Hey, the city's full. Things are great,’” Destination DC President and CEO Elliott Ferguson said. “And I'm like, yeah, things are great-ish. We still are behind in terms of international visitation. We want everyone to come here, eighth graders and everyone else in between, but we want those that are going to stay longer and spend more.” 

Although international travelers account for only 7% of D.C.’s overall visitors, they spend 27% of the overall tourism dollars, according to Travel Market Insights data presented at the meeting. 

Fueling D.C.’s recent growth has been the normalization of business travel, which had been slower than leisure travel to come back since the onset of the pandemic. As the home of the federal government, association headquarters and lobbying firms, D.C. has seen an especially strong benefit from growing business travel.

“Group [demand] definitely is coming back,” CBRE Hotel Advisory Senior Vice President Michael Cummings told Bisnow. “It's one of the stronger markets right now that's coming back."

Revenue from group travel in the city was up 10.1% in the second quarter compared to the same quarter last year, according to Knowland meetings and event data. It saw a 9% increase in the first half of the year compared to the first half of 2023. By comparison, the top 25 hotel markets saw an 8% increase for the second quarter and a 5.3% increase for the first half of the year.

“We're encouraged to see, again, group corporate, group production to be very, very strong through the first seven months,” Donohoe Hospitality President Thomas Penny told Bisnow.

Donohoe’s D.C. portfolio has seen a 108% increase in corporate group business in the first half of 2024 compared to the first half of 2023, he said. His firm owns 12 hotels in the area, including the Residence Inn hotel near the National Mall, the Holiday Inn on Capitol Hill and the Cambria Hotel in the Navy Yard, and it manages the Hyatt Place National Mall on behalf of CityPartners. 

CarrAmerica CEO Austin Flajser, whose firm owns the Willard InterContinental and The Wharf InterContinental, said D.C.’s hotel market lagged other markets in the early part of the pandemic-era recovery but has since caught up, in part because of growing corporate and international travelers.

“Business demand is still not what it was pre-Covid, but it has been steadily growing,” he said. “We think it's got more room to run. And similarly, we're seeing a little bit better international stays, but we would like to see more of that, certainly, to get that back to prepandemic levels.”

Business travel has been counterbalancing a slowing leisure market, which fueled the first years of the pandemic recovery, and business travel is expected to be the main bolstering force behind D.C.’s tourism growth, STR’s Hite said.

Although overall tourism has recovered to prepandemic levels, hotel occupancy is still falling short. In 2019, the city had a 73% occupancy average, according to CBRE. This year, the brokerage predicts it will average 70.5% and reach 72.6% by 2026.

Hotel owners say that although the past few years have been encouraging, the industry was hit so hard during the pandemic that it needs more than a few good years.

“There is no way to overemphasize how devastating the pandemic was to hospitality and, certainly, hospitality in this city,” said Griffis, whose firm opened the citizenM hotel near the National Mall in October 2020. 

“That hole is deep, so we need some great-performing years because it's hard to make up that loss in a single year or several years.”

The nation’s capital has inherent demand drivers that lend a certain stability. Arts and history tourist attractions, universities, festivals, major agencies and law firms are located here for proximity to the government.

But city officials expect large demand spikes from events next year, including World Pride 2025, which is estimated to bring in 2 million overnight visitors next summer and $787M in revenue, Destination DC said, citing S&P Global. 

D.C. will also host the inauguration in January, typically a boost for the city's hotel market that was muted in 2021 due to the pandemic. 

“The inauguration will be like no other,” Bowser said. “We're going to sell a lot of hotel rooms.”

CORRECTION, AUG. 27, 8:45 P.M. ET: A previous version of this story incorrectly stated the owner of the Hyatt Place National Mall. This story has been updated.