STR sees storm clouds forming for US hotel performance as it readjusts its 2019 and 2020 RevPAR projections

Continued lack of hotelier pricing confidence has resulted in hospitality benchmarking specialist STR lowering its full year 2019 and 2020 forecast for the key revenue per available room (RevPAR) metric for the United States of America, just two months after its previous projection.

The global hotel demand tracking company has lowered RevPAR for the US hotel industry by a fifth for the current year from a predicted +2% increase to growth of +1.6%. For 2020, RevPAR will grow just +1.1% versus a previous forecast of an increase of +1.9%, it says, a more than double 42% readjustment.

STR concluded that while absolute hotel occupancy remains high, year-over-year growth is nearly flat, which is pressuring average daily rates (ADR) to drive RevPAR.

“We continue to see ADR rise below the level of inflation even as the industry operates in the highest demand and occupancy environment in history,” says Amanda Hite, STR’s president and CEO. “The absence of hotelier pricing confidence has even extended into the peak summer months, leading us to downgrade our ADR projections by 50 basis points for 2019 and 80 basis points for 2020.”

For 2019, STR projects the US hotel industry will see a +0.2% increase in occupancy to 66.3%, +1.4% growth in ADR to USD131.83 and a +1.6% rise in RevPAR to USD87.41. The company noted that +2.9% RevPAR growth in 2017 and 2018 was the lowest since the recession.

STR’s 2020 forecast shows a -0.3% decrease in US hotel occupancy to 66.1% and a +1.4% increase in ADR to USD133.70. RevPAR will grow +1.1% to USD88.40. This is a significant assumption as occupancy rates in the US have not declined since 2009.

“Supply growth has been manageable if you look at data from a national perspective, but there are plenty of major markets and several segments – select-service mostly – that have seen the negative effects of new inventory even with consistent demand. We’re still in a RevPAR growth cycle for now, but driving profit is a real challenge for many properties around the country,” adds Ms Hite.

In 2019, STR projects that four of the Top 25 Markets will still see RevPAR growth of +3.0% or higher. These comprise Atlanta, Georgia; Tampa/St. Petersburg, Florida; San Francisco/San Mateo, California; and Nashville, Tennessee. However, six are forecasted for a decrease in RevPAR for the year, comprising Houston, Texas; New York, New York; Seattle, Washington; Minneapolis/St. Paul, Minnesota-Wisconsin; Miami/Hialeah, Florida; and Washington, DC-MD-VA.

Among chain scales, STR identifies the Economy segment as likely to report the largest increase in occupancy (+1.0%). Luxury chains are expected to post the highest growth rate in ADR (+2.4%). Independents are expected to see the highest jump in RevPAR (+2.4%). While all segments should report RevPAR increases for 2019, the lowest rate projected in the Upscale segment (+0.3%).

For 2020, sees a more compressed performance among the Top 25 Markets in the country with just Miami and San Francisco reporting RevPAR growth above +3.0% and New York the only of the major markets forecasted for a RevPAR decline. The highest overall rate of RevPAR growth (+1.8%) is expected in the Luxury segment, while the lowest is once again projected among Upscale chains (+0.4%).

Latest figures from STR for Jul-2019 actually show encouraging signs with absolute RevPAR levels almost hitting USD100 for the first month ever. There were calendar shifts that influenced the monthly performance, but the industry set another monthly demand record. However, increasing supply continues to dilute occupancy growth and pricing. In a year-over-year comparison with Jul-2018, occupancy was up +0.4% to 73.8%, ADR rose +0.7% to USD135.04 and RevPAR grew +1.1% to USD99.62.

The Blue Swan Daily reported last week that hotel construction activity in the US USA has now increased year-on-year for ten consecutive months with data from benchmarking specialist STR showing 1,573 projects accounting for 205,992 rooms in construction as of Jul-2019. This represents an +8.3% increase in the number of rooms in the final phase of the development pipeline versus the same time last year.