REPORT FROM THE U.S.—The beginning of 2013 has yielded fruitful growth in the U.S. hotel industry, which will continue—albeit slowly—into the rest of the year and 2014, according to a Market Forecast & Hotel Industry Outlook Webinar hosted by STR and Tourism Economics. STR is the parent company of HotelNewsNow.com.
Even though the U.S. is in a period of austerity, gross-domestic-product growth will be just over 2% this year and accelerate to 3% during the next year, Adam Sacks, founder and managing director of Tourism Economics, said.
Sacks said additional factors have helped the U.S. economy, as well.
“The worst of the fiscal cliff has been avoided, the Main Street economy has not been dramatically affected and even though tax increases and spending cutbacks have taken hold, there is no noticeable effect on macroeconomics,” he said.
The hotel industry will take hold of this positive momentum moving into 2013.
During the first quarter of 2013, the hotel industry’s 6.4% increase in revenue per available room growth was fueled by a 4.5% uptick in average daily rate, said Bobby Bowers, senior VP of STR.
“What’s driving RevPAR now is rate,” Bowers said.
Supply and demand
Although rate recovery is a positive sign, the favorable supply-demand balance that has persisted for more than a year is showing some initial signs of evening out.
“What you can see with this is the demand part is coming down to sustainable levels after a snap back from the downturn,” Bowers said. However, the “very low” room supply growth over the last two years is “beginning to creep up” around 0.6%.
With more room supply being added, it will put a drag on occupancy, he added.
Occupancy is in solid territory, according to Sacks, but it will soften going into 2014 and 2015 as supply begins to increase.
RevPAR growth is up 6.5% for first the quarter of 2013. Historical patterns show RevPAR growth extends for long periods of time followed by a downturn. “We’re in a growth phase of just under three years,” Bowers said.
“Hopefully, we’ll see more years of RevPAR growth as we move into this trend,” he added.
“The RevPAR potential for the industry is real,” Sacks said.
Click chart to enlarge.
Transient and group
The upper end of the market is seeing strong transient performance, particularly in the luxury, upper-upscale and upper-tier independent hotels, Bowers said.
“Transient performance has been strong and continues to be strong,” he said.
“On the group side, however, compared to where we are today and how we got there, there are challenges in terms of group roomnights sold,” Bowers added.
“Even though we’ve made progress, we’re still not back to where we want to be in transient and group rate,” he said.
STR analyzes hotel performance in 163 U.S. markets, more than two-thirds of which experienced increases in occupancy and ADR during the first quarter. That’s a good sign going into 2013, Bowers said.
The top 25 markets are much stronger, showing RevPAR growth of 8%, which is being driven by rate.
The key 15 markets, which account for 25% of the industry room supply, are generating two-thirds of room revenue. Markets such as Oahu, Hawaii (+18.4%), Miami (+16.7%), New York (+12.9%) and Houston (+12.6%) are showing positive signs and increases in RevPAR moving into 2013.
When looking at the top 15 markets, the problem is two-thirds of those markets remain under prior peak ADR, Bowers said. “That’s one of the things we want to see as we move into 2013—continued growth in rate.”
Sacks said of the top 25 markets, Miami, Boston and Oahu are showing the largest increases in occupancy. “Anything where demand growth is outpacing supply growth, we’ll see occupancy rising. Anything where supply is outpacing demand, expect occupancy to decline.”
Click chart to enlarge.
Moving into the rest of 2013, room supply will grow slowly. 73,000 rooms are under construction, a 20% increase of rooms under construction in April 2013 compared to April 2012.
Approximately two-thirds of rooms under construction are classified as upscale or upper-midscale, and four out of 10 rooms are concentrated in metro areas.
New York has the largest number of rooms under construction with 10,600.
New York is second to last in expected RevPAR growth during the next two years, Sacks said. The same is true of Nashville, Tennessee, Washington, D.C., and Philadelphia. Miami and Boston will see the greatest RevPAR growth during the next two years, he added.
“Demand has been strong so supply is right behind and as a result RevPAR expectations are relatively slow,” he said.
Overall, Bowers said, “we had a really good start to 2013,” and although room supply growth is creeping higher, it’s still not a huge threat. The focus going forward will be on ADR driving RevPAR, he added.
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