STR raises US hotel industry forecast as stronger-than-expected pricing power boosts performance levels

In what is a rare occurrence, industry benchmarking specialist STR has raised its performance forecast for the US hotel industry in its mid-year projections after stronger-than-expected pricing power over the last quarter. In its revised forecast in collaboration with Tourism Economics released at the 10th Annual Hotel Data Conference it revealed the US hotel industry is “projected to exceed earlier forecasts and continue on its record-breaking performance run through 2019.”


Summary:

  • STR has raised its performance forecast for the US hotel industry in its mid-year projections after stronger-than-expected pricing power over the last quarter;
  • Benchmarking specialist says US hotel industry is “projected to exceed earlier forecasts and continue on its record-breaking performance run through 2019.”;
  • For 2018, the US hotel industry is now projected to report a +0.6% increase in occupancy to 66.3%, a +2.6% rise in ADR to USD129.85 and a +3.2% lift in revenue per available room (RevPAR) to USD86.09;
  • The revised projection suggests that 22 of the 25 largest markets across the US are projected to report RevPAR growth for the year.

For the total year, the US hotel industry is now projected to report a +0.6% increase in occupancy to 66.3%, a +2.6% rise in average daily rate (ADR) to USD129.85 and a +3.2% lift in revenue per available room (RevPAR) to USD86.09. This will mean that RevPAR will continue a growth trend that has seen rates of at least +3.0% every year since 2010.

“Rarely do we lift our ADR projections during our mid-year revisions, but stronger-than-expected pricing power over the last quarter has led us to lift our rate forecast by 10 basis points,” explains Amanda Hite, STR’s president and CEO. “Certainly, inflation plays a role in ADR growth—inflation-adjusted figures show that ADR has basically been flat—but solid economic conditions and an earlier stronger impact from the recent tax cuts are helping to push growth further in the metrics.”

For the current year STR sees supply up +2.0% and demand up by a higher rate of +2.6% and therefore boosting occupancy by +0.6%. Next year’s forecast is a little more conservative with supply up +1.9%, demand up +2.1% and occupancy increasing +0.2%, according to STR and Tourism Economics estimates.

“Aside from GDP growth and low unemployment, we’re starting to see a positive uptick in wages,” explains Ms Hite. “We’ll need to see more in that area to count this as another driver of demand, but these are all good signs for the continued health of the industry through at least 2019.”

The luxury chain scale segment is likely to report the largest increases in occupancy (+0.9%), ADR (+3.0%) and RevPAR (+3.9%), they claim, and while all segments are expected to report RevPAR increases for 2018, the lowest rate of RevPAR growth is projected in the Upscale segment (+2.0%).

The revised projection suggests that 22 of the 25 largest markets across the US are projected to report RevPAR growth for the year. While most markets are projected in the 0% to +5.0% range, Minneapolis/St. Paul, Minnesota-Wisconsin, and Miami/Hialeah, Florida, are expected to see growth in the range of +5% and +10%. The only three markets expected to show a decrease in RevPAR, all between 0% and -5%, are identified as Houston, Texas; St. Louis, Missouri-Illinois; and Washington, D.C.-Maryland-Virginia.

For 2019, STR and Tourism Economics project the US hotel industry to report a +0.2% increase in occupancy to 66.4%, a +2.4% lift in ADR to USD132.97 and a +2.6% rise in RevPAR to USD88.29. The highest overall rate of RevPAR growth is expected in the Independent segment (+2.5%), while the lowest is projected among Midscale (+2.1%), Upper Midscale (+2.1%) and Upscale (+2.1%) chains.

In vast contrast to this year, Minneapolis is alone across the 25 largest markets across the US in being projected to report a negative RevPAR percentage change for the year. The remaining 24 markets are expected to post growth between 0% and 5%, says STR and Tourism Economics.

Meanwhile, an update to STR’s hotel pipeline data shows almost 6,000 (5,858) properties under construction or in planning across the Americas region offering almost 720,000 new rooms (719,882). Already 1,711 properties offering 237,738 rooms are under construction.

The United States of America (USA) Jul-2018 room construction total represents a +0.8% increase compared with Jul-2017 and produced the first year-over-year rise in rooms in construction since Nov-2017, according to STR. In total 5,183 properties are in the USA pipeline offering 608,509 rooms – 1,449 properties and 190,260 rooms are already in construction, 1,925 properties and 223,774 rooms are in final planning and 1,809 properties and 194,475 rooms are in planning. Alongside the +0.8% rise in room construction numbers, the number of rooms in final planning was up +2.1 and the number of rooms in planning up +5.8% versus the same month last year.

The Caribbean and Mexico is seeing a rapid rise in room construction with the Jul-2018 total representing a +49.0% increase compared with Jul-2017, according to STR. In total 275 properties are in the regional pipeline offering 51,334 rooms – 109 properties and 23,868 rooms are already in construction, 68 properties and 13,939 rooms are in final planning and 98 properties and 13,527 rooms are in planning. Cuba is a key developing market as it continues infrastructure improvements to support tourism demand with 2,240 rooms under construction, 3.6% of its existing supply.

In comparison the Central and South America room construction total represents a -13.6% decrease compared with Jul-2017, according to the STR pipeline data. In total 400 properties are in the regional pipeline offering 60,039 rooms – 153 properties and 23,610 rooms are already in construction, 82 properties and 12,611 rooms are in final planning and 165 properties and 23,818 rooms are in planning. Brazil is the country with the largest number of rooms in construction, while Colombia is seeing the largest rise in new accommodation.

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