Data experts from STR, CBRE and TravelClick showed consistent performance metrics, but pointed out potential areas of vulnerability for hoteliers moving forward.
ATLANTA—Presenters for the “Statistically Speaking” general session at the 2017 Hunter Hotel Investment Conference shared a common sentiment that the U.S. hotel industry is still performing well overall, but there are some challenges ahead that will require some preparation.
Overall total occupancy is still pretty healthy, said Jan Freitag, SVP of lodging insights at STR, parent company of HNN, but average daily rate growth is the name of the game. At the moment ADR growth is fine, he said, considering the U.S. industry has seen 84 months of consecutive revenue per available room growth.
“The question is, how much longer can this go?” he asked. “We’re suggesting we probably have another at least two years of positive RevPAR growth ahead of us. It’ll be driven by ADR growth.”
As of February, ADR growth over a 12-month moving average was 2.9%.
The strong U.S. dollar has had an effect on hotel demand, said Mark Woodworth senior managing director at CBRE Hotels, with higher-priced properties feeling it the most. In gateway cities, the currency exchange negatively moves the needle as the dollar continues to strengthen.
In some gateway cities, there is strong cumulative growth in daily rate led by San Francisco, he said.
“Not surprisingly, those markets have little to any supply growth over the same period of time with high occupancy levels as of last year,” he said. “In the other gateway markets in the analysis, those with lowest ADR growth have higher supply growth.”
- Read “5 things to know about hotels and the US economy” for more U.S. economy data from the Hunter Hotel Investment Conference.
STR’s current forecast calls for 2.5% RevPAR growth in 2017 compared to 2016, and CBRE’s forecast for the same period is 3% growth. STR forecasts ADR will grow 2.8% in 2017, and CBRE forecasts ADR growth at 3.1% for the year.
Demand growth remains a consistent and healthy 3% among transient guests, Freitag said, but ADR growth is slowing.
“It’s interesting we don’t feel we have a whole lot of pricing power,” he said. “I would expect that to be higher given the high demand.”
The industry is selling as many group rooms as a year ago, he said, but that’s not a lot. Those group rooms were negotiated 18 months to two years ago when there was high group ADR growth, he said. It’s important to understand STR feels room demand is here to stay and healthy, he said.
The industry has taken to building mostly select-service hotels, he said. Sixty-four percent of hotel rooms in construction in the U.S. are in the upper midscale and upscale segments, with only about 27,000 rooms in construction in the upper upscale segment and 8,500 in luxury.
“I’m afraid we’re painting ourselves into a corner,” he said. “Group demand is inching up. Where are they going to meet? As an industry, we’re going to face that in a couple of years.”
Katie Moro, global director of business intelligence product at TravelClick, said she presented at last year’s conference that business pace over the next 12 months would be up 4% year over year.
“When I got off stage and went home, pace started declining,” she said. “Every month after, it declined. The last-minute group business we were used to seeing wasn’t there anymore.”
In looking at group block plus transient rooms reserved, Moro said transient demand in the last few months of summer before group season starts concerns her. September reservations are down, she said, and that’s something hoteliers should review at the property level.
“How do you plan for that?” she asked attendees. “How do you drive that business?”
Moro said she hopes hoteliers hold strong on rate instead of following a race-to-the-bottom mentality. She advised against lower rates because of uncertainty over the next several years.
Challenges and opportunities in 2017
Smaller markets are expected to perform better in the years ahead, Woodworth said, adding that, “Small is the new big.”
CBRE’s overall takeaway is conditions remain good and the industry will maintain a durable income stream for at least the next two to three years, Woodworth said.
Moro said her main concern is Q3 2017, a typically leisure-filled quarter. Hoteliers need to put a plan in place how to drive transient business to their hotels, she said. The decline of corporate travel is concerning, she said, so hoteliers should make sure their properties are priced appropriately.
“You will have slow periods when you have to lower rates, but when you get busy, you have to take advantage of that,” she said.
Loyalty bookings continue to grow, she said, which means getting to know the guests to improve retargeting them.
Freitag said he’s frequently asked about the effects of the Trump administration on the hotel industry, but with only a few months in, he doesn’t know. However, he looked at the number of unauthorized immigrants by industry. The leisure and hospitality industry would be among the hardest hit through crackdowns on undocumented workers, he said, and it would place “huge pressure on wages.”
Citing 2006 data from Tourism Economics and the Pew Research Center, he demonstrated the percentage of foreign arrivals decreased from countries that held less favorable views of the U.S. following the country’s policies and involvement in Iraq and Afghanistan. The current administration has put forward travel bans and is asking for social media passwords from new arrivals and prohibiting laptops owned by guests of certain countries, he said.
“If the word is out the U.S. is not open for business, I think we know where the story ends,” he said. “I’m not saying this is going to happen. I think this is a really compelling chart for what could happen.”
Airbnb shared its data for the first time with STR to perform an analysis of seven markets around the world, and STR published that report in January. Airbnb occupancy was at its lowest midweek and highest on weekends, he said, and the July 2016 12-month moving average data shows one out of every two Airbnb rooms is empty.
The hotel industry practices good yield management for ADR, he said, while Airbnb seems to be in the process of figuring that out.
“It’s more owner-driven: ‘This is the number I want, and then I go away,’” he said.
In looking at the seven markets, fewer than half of the hosts sold stays of seven or more nights, he said. Airbnb keeps making the argument it’s not competitive against hotels because of the longer-term stays, he said, but stays of fewer than seven nights make up about half of total stays.
“To say it’s not competitive is a little short-sighted,” he said.
Citing research his company released along with the American Hospitality & Lodging Association, Woodworth said virtually every measure of Airbnb showed significant year-over-year growth. The hotel industry is interested in establishing a level playing field, he said.
“For the top 25 STR markets, there are only a few where Airbnb warrants your attention if it’s in your particular market,” he said.