The lodging industry began the year with a good deal of uncertainty, much of which was the result of a new administration in the White House and weakening fundamentals, but there is far more clarity as we approach the two-thirds mark of the year.
The net result of that clarity is the expectation of continued growth, albeit at a slower pace, for a good portion of the industry. A pair of revised forecasts from STR and CBRE recently revealed that the industry looks solid, if not spectacular, for the foreseeable future.
CBRE recently released its September 2017 editions of Hotel Horizons in which CBRE Hotels’ Americas Research is forecasting year-over-year increases in occupancy, average daily room rate (ADR), rooms revenue (RevPAR), total operating revenue, and gross operating profits from 2017 to 2018. Specifically, CBRE is forecasting a 0.1 percent occupancy increase along with a 2.3 percent rise in ADR for 2018. The net result is a projected 2.4 percent spike in RevPAR.
Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research, talked about the importance of the most recent data. “As hotel owners and operators begin the process of preparing their 2018 marketing plans and budgets it is vital that they receive critical inputs on what will drive industry performance. Based on our analysis of the economic and operating environments, we believe that U.S. hotels will once again achieve record occupancy levels and continued growth in profits, during the upcoming year,” he said in a press release.
The company has also identified an uptick in new lodging supply. For 2018, CBRE is forecasting a 2.0 percent increase in the number of available rooms. This does exceed the 1.8 percent long run average annual rate of supply growth as reported by STR. However, the company added that a number of economic factors, such as employment levels and income gains, that impact demand growth have reduced the effect of the increased supply.
Nevertheless, the anticipated supply growth is the primary reason that 50 of the 60 major markets in the CBRE report are projected to realize a decline in occupancy in 2018. However, profit margins for hotels have grown each year since 2009 and in 2017 are forecast to be at their highest levels since 1959. According to Woodworth, that trend is expected to continue. “Given their track record, we believe hotels operators will once again control costs sufficiently to allow for profit growth in 2018.”
Meanwhile, earlier this month at the Hotel Data Conference in Nashville, STR and Tourism Economics released a revised forecast with similar findings. Predictions for total year 2017 are that the U.S. hotel industry will report flat occupancy at 65.5 percent, a 2.3 percent rise in ADR to $126.94 and a 2.3 percent increase in RevPAR to $83.09. As a point of comparison, RevPAR grew more than 3.0 percent for each year from 2010 to 2016.
According to Amanda Hite, president and CEO, STR, “Demand growth exceeded forecasts during the second quarter, which falls in line with reports that tourism has surpassed expectations. That led us to lift our RevPAR projections for total-year 2017 even with weaker than expected ADR growth. That lack of pricing power will be more of an issue in 2018 when occupancy is forecasted to decline. Regardless, industry performance should stay healthy with moderate rate growth pushing RevPAR levels to all-time highs,” she stated in a release.
For 2018, STR and Tourism Economics project the hotel industry to report a 0.2 percent decrease in occupancy to 65. 3 percent but increases in ADR—plus 2.5 percent—to $130.11, and RevPAR—plus 2.3 percent—to $84.97. The independent segment is likely to report flat occupancy as well as the largest increase in ADR—plus 2.7 percent—and RevPAR—plus 2.6 percent. All other segments are forecasted to see a dip in occupancy.
From a market perspective, 20 of the top 25 markets are expected to post flat or growing RevPAR for the full year in 2017, according to STR. Most markets will likely see an increase between 0 percent and 5 percent. Seattle, WA, and Norfolk/Virginia Beach, VA, are the only U.S. markets expected to see record growth in the range of 5 percent to 10 percent.
For 2018, all top 25 markets—with the exception of Miami/Hialeah, FL, and Houston, TX—are likely to see RevPAR performance between 0 percent and 5 percent. Each of those markets is expected to see flat to a decrease of 5 percent in RevPAR.