Freitag’s 5: US December performance meets in middle
Freitag’s 5: US December performance meets in middle
31 JANUARY 2017 10:05 AM

Not great, not bad, but just average growth in the U.S. hotel industry in December, and throughout 2016, is likely to set the pace for 2017. 

HENDERSONVILLE, Tennessee—Average! In a year that defied convention and saw Brexit, Trump and the deaths of Leonard Cohen, Prince and David Bowie, and when nothing seemed average, well, U.S. hotel performance certainly was.

The long-run average revenue-per-available-room percent change back to 1990 is 3.2%. The 2016 full year result was 3.2%. Yup, average.

1. Outlook not great, but not bad
Before I jump into the analysis of the results for December and the full year, here is the new forecast from STR, parent company of Hotel News Now:

So supply growth will outpace demand growth, and ADR growth will make up for the occupancy decline. And all will be well. Not great, but not bad. Just, how shall I say, average.

2. Highest and lowest
December monthly results were quite normal with RevPAR growth of 2.3%, which made December the 82nd consecutive month of RevPAR growth. December demand was the highest ever for any December with approximately 83 million roomnights sold. That was 1.7% higher than December 2015, but because supply growth is accelerating and stood at 1.8%, occupancy declined by 0.1%.

Occupancies in December are traditionally weak, and 2016 was no exception. The occupancy of 52.9% implies that almost half of all rooms were empty. That said, it is the second-highest occupancy ever recorded. But no matter all those empty rooms, hoteliers increased room rates by 2.4%—not great, not bad, and a sign of things to come. The increase of 2.4% is the second-lowest ADR growth in 2016, behind October (+2%), which was due to a calendar shift. So really, December ADR growth is the lowest “true” percent change and likely a sign of things to come.

Supply increased sequentially from November’s 1.7% growth, and the increase is now higher than in the last 78 months. In absolute terms, that means that we added 2.8 million roomnights in the month, or approximately 91,000 each day.

3. Luxury leads the way
Chain scale performance was mixed with five of the eight chain scales showing RevPAR increases. Three segments reported occupancy declines, and those also all showed strong supply increases and weak ADR growth. Luxury hotels were the outliers, maybe because of Christmas/New Year’s Eve traffic.

4. Just a coincidence?
2016 was another year of records and another year of disappointments. Supply (1.8 billion roomnights), demand (1.2 billion roomnights) and room revenue ($149 billion) were at all-time highs. Occupancy (65.5%), ADR ($124) and RevPAR ($81) also were at all-time highs. Yay for new records! But, as usual, no one really cares about the absolute values and everyone wants to know about growth.

So, RevPAR grew by 3.2%, driven by an occupancy increase of 0.1% and ADR increase of 3.1%. Going back to 1987, RevPAR growth was 3.3%. Taking out the first two years and just looking at the average RevPAR growth since 1990 (which may be a bit easier to communicate since people love round numbers) the growth was—yup, you guessed it—3.2%. So, of course those two numbers matching is a random coincidence and really does not mean much, but it makes for a fabulous headline on HNN, which is why I am stressing it.

5. Top 25 markets are trend-setters
The top 25 markets had a good year in 2016, with healthy occupancy (73.4%), selling more than seven of 10 rooms each night, which was slightly down (-0.2%) because demand growth (+1.9%) was outpaced by supply increases (+2.1%). Top 25 ADR growth (+2.6%) trailed ADR in all other markets (+3.6%), hence the country’s ADR growth of 3.2% overall.

So, what we are predicting for the U.S. as a whole in 2017 is already happening in the larger markets, and supply increases will continue to dominate the conversation there. In the top 25 markets, segmentation growth was muted: Transient is up 1.3%, and group increased 1.7%. What is troubling here is that transient ADR growth was only 0.9% (for group, 3.3%) and in eight of the top 25 markets transient ADRs declined.

What else
We received, studied and published a white paper with an analysis of Airbnb data, which you can also find on HNN.

Please let us know if you have questions. It’s an important piece of research that will guide a lot of the conversation going forward.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • Brian Werkman - NewcrestImage January 31, 2017 10:41 AM Reply

    Great article as always Jan - keep up the great work in informing hoteliers of trends, challenges, and opportunities!

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