Phoenix Hotel Market: Growth Driven by Sports Tourism and Industry Expansion

The Phoenix metropolitan area has emerged as a leading destination for sports viewing and luxury getaways. Corporate relocations and major infrastructure projects are also continuing to drive population growth.

Regardless of the purpose of their visit, the influx of travelers is fueling growth in Phoenix's hotel industry—in recent years, the market's hotel RevPAR, ADR, and occupancy have all trended upward, with RevPAR and ADR significantly surpassing pre-pandemic levels.

Strong growth fundamentals are keeping hotel investors highly interested in transactions in the region, and developers are targeting the hottest submarkets for their next lodging projects, ranging from luxury resorts to economy extended-stay hotels.

Local hotel industry experts shared insights with Hotel Dive about Phoenix's rapidly growing economy and its impact on existing and future hotels.

Sports tourism boosts leisure travel

According to an economic impact report prepared by Tourism Economics for Visit Phoenix and obtained by Hotel Dive, visitor volume to the Phoenix metropolitan area grew 4.7% year over year in 2023, reaching 46.7 million trips.

Visitor spending also increased: In 2023, visitor expenditures in the Phoenix metropolitan statistical area reached $12.9 billion, up 7.6% from the prior year and 27.1% from 2019. Approximately 35% of that—about $4.5 billion—was spent on lodging.

Eric Kerr, vice president of insights and development at Visit Phoenix, told Hotel Dive that visitors come to the MSA for a variety of reasons.

Some visitors come to experience the area's outdoor recreation and "escape more crowded cities," Kerr said, while sporting events are a "huge driver" of leisure travel.

Nearby Glendale, Arizona, hosted Super Bowl LVII in February 2023, "solidifying the [Phoenix area's] ability to host national events," commercial real estate firm Marcus & Millichap detailed in a market report.

The metro also hosts annual events like Cactus League spring training in February and March, during which 15 Major League Baseball teams use 10 facilities for pre-season practice and exhibition games.

"March is our biggest month for the hotel market, and that coincides with Cactus League spring training," Kerr said. According to research from Arizona State University's W. P. Carey School of Business, the Cactus League generated an economic impact of approximately $710 million for Arizona in 2023.

Kerr also noted that Phoenix hosts NASCAR races annually and has been selected to host the 2026 NCAA Women's Final Four.

Group and business travel recovery

Meanwhile, Kerr pointed out that the strong recovery of meetings and events is bringing group travel into the market.

Brian Frakes, president of local development company Common Bond Development Group, echoed Kerr's remarks, saying "group demand is very, very strong across the board."

According to Knowland and Amadeus Hospitality Group data, Phoenix was one of 20 U.S. markets to achieve 100% recovery in group business performance in the fourth quarter of 2023.

Branden White, vice president and consultant in CBRE's Western Division of Hotel Consulting, told Hotel Dive that the Phoenix MSA "is less reliant on international travel and group business than many comparable regional markets."

According to a CBRE hotel research report obtained by Hotel Dive, business travel saw "modest growth" in the first quarter of 2024, as "more meetings and conventions are leaning toward in-person participation."

White said the market is poised for growth in so-called "bleisure" demand, thanks to its "friendly business environment, large local talent pool, and favorable location."

Julius Robinson, chief sales and marketing officer for Marriott in the U.S. and Canada, previously told Hotel Dive that bleisure travel—where business travelers extend their stays to enjoy destination leisure offerings—is a leading meetings and events trend to watch this year.

Hotel performance outpaces other regional markets

Against the backdrop of strong travel demand, the Phoenix MSA has performed "exceptionally well" in recent years, outpacing other regional markets in occupancy and ADR, White said.

According to a CBRE report, Phoenix hotel occupancy, ADR, and RevPAR grew 1.3%, 6.9%, and 8.2% year over year, respectively, in 2023. While 2023 occupancy was slightly below 2019 levels, ADR and RevPAR were up significantly—29% and 27%, respectively—compared with that period.

However, White noted that ADR saw some pullback in the first quarter of this year, "relative to the exceptionally strong performance in Q1 2023, which was driven by Super Bowl LVII and MLB spring training."

He added that supply growth is expected to outpace demand growth in 2024, leading to a slight decline in occupancy.

CBRE forecasts that Phoenix hotel occupancy will decline 0.2% in 2024, with ADR and RevPAR down 1.1% and 1.3%, respectively. But CBRE expects all market performance metrics to rise year over year in 2025.

"Looking ahead to 2025, Phoenix RevPAR is expected to grow 2.8%, reversing the downward trend in 2024," CBRE reported. Additionally, "mid-price segment RevPAR growth prospects are better than those of the upper-price segment."

White said that nearly half—47%—of rooms in the Phoenix market are in the mid-price tier, with about 33% in the upper-price tier and 20% in the economy tier.

"That represents a higher-than-average share of upper-price rooms, as only about one-fifth of U.S. hotel markets have 25% or more upper-price product," White added.

Investors remain hungry for deals

White said the Phoenix MSA's strong performance fundamentals make it a market "of great interest to hotel investors."

In addition to healthy tourism levels, the region's recent population growth—driven by a "booming" technology and manufacturing sector—has also spurred hotel investment, White said. In January, commercial real estate advisory firm Newmark Group ranked Phoenix first in U.S. manufacturing job growth, noting the market added more than 15,000 jobs in that sector alone in 2023.

White shared that "hotel investment volume in the Phoenix market was approximately $1.5 billion" over the past year, with four hotels selling for more than $100 million each. Over the past two years, the mid-price segment has dominated most of the sales volume.

He noted that most recent hotel sales have been single-asset transactions between private buyers.

In May, Henderson Park acquired the 705-room Arizona Biltmore Hotel (a Waldorf Astoria Resort) for $705 million. Chatham Lodging Trust also recently purchased the Home2 Suites by Hilton in downtown Phoenix for $43.3 million.

White said the Scottsdale submarket accounts for a significant portion of sales volume and is also the best-performing submarket in ADR and RevPAR. According to a CBRE report, Scottsdale's ADR grew 3% year over year in 2023, with RevPAR up 5.9%.

Investment activity across the metro "is expected to remain robust in the near term," White said.

Developers focus on extended-stay segment

White noted that just as manufacturing job growth keeps investors interested in the Phoenix MSA, it is also driving hotel development—particularly in the extended-stay segment.

For example, TSMC "continues to bring in workers for its $40 billion semiconductor plant project in the area," Marcus & Millichap detailed in its report. Many of these workers require long-term accommodations, so nearby extended-stay hotels "may see improved demand and attract investor interest" as a result, the report said.

Other major projects under construction in the Phoenix MSA include tech company Intel's $20 billion development of two semiconductor plants and Nestlé's $675 million creamer factory.

White said that to meet hotel demand from construction workers for these and other projects, several new extended-stay hotels have opened in recent years, with more in the pipeline.

Paul Duncan, head of development for extended-stay brand LivAway Suites, told Hotel Dive in April that the brand is targeting Phoenix for expansion due to the region's ongoing infrastructure projects. Developers of Wyndham's Echo Suites extended-stay brand are also eyeing Arizona for similar reasons.

But it's not just the extended-stay segment driving hotel development in the Phoenix MSA.

Marriott International is developing a dual-branded AC Hotel and Element by Westin in the Norterra community. Several large luxury resort projects are also under construction in the market, including the $1 billion VAI Resort.

The 60-acre VAI will feature approximately 1,100 hotel rooms and suites, a 360-degree concert stage, more than a dozen fine-dining concepts, and a 5-acre pool. The resort will also be home to the first Mattel Adventure theme park.

VAI Resort is scheduled to open in 2025. Image courtesy of VAI Resort

Frakes noted that more visitors are seeking experiential offerings when they visit Phoenix, particularly hotel dining concepts. Frakes co-owns the newly opened Global Ambassador resort in Phoenix with restaurateur and 12-time James Beard Award nominee Sam Fox, and the property offers five distinct dining concepts.

The 20-acre Ritz-Carlton Paradise Valley, currently under construction, will also offer luxury dining experiences, along with more than 20,000 square feet of meeting space, a spa, and a 400-foot-long pool.

According to Lodging Econometrics, Phoenix has a robust hotel development pipeline across all segments. In the first quarter of 2024, Phoenix ranked fourth in the U.S. for hotel construction pipeline size, trailing only Dallas, Atlanta, and Nashville.

"Pipeline and development activity are expected to remain elevated through 2024 and 2025, before returning to growth rates closer to long-term averages," White said.

Correction: A previous version of this article misstated the opening date of VAI Resort. The project is scheduled to open in 2025.