Constrained demand is the forecasted level of demand limited by certain factors such as production capacity, supply of materials, cash flow, regulations, etc. It’s the opposite of unconstrained demand forecasts that show potential market demand without taking into account any limitations to the ability to satisfy it.
For example, the forecasted demand for a newly released gadget can exceed the manufacturer’s ability to produce as many items as needed because of a lack of components.
In hospitality, constrained demand can mean that the property’s capacity doesn’t meet the real demand (e.g., in peak season). It can also mean restricted demand due to setting various constraints (e.g., increasing prices or implementing yield management restrictions such as Minimum Length of Stay or Closed to Arrival). Revenue managers sometimes intentionally constrain demand to maximize profit.