Historic data shows the impact recessions have on RevPAR performance at the submarket level.
HENDERSONVILLE, Tennessee—In a recent article, I discussed the increase in the number of 639 submarkets that reported revenue-per-available-room declines year over year.
Specifically I pointed out that in 2014, only 4% of submarkets had negative RevPAR change, but that in 2016 that number had increased to one in five areas. A few readers wondered how this number compared to historical averages, so we ran the data back to 1990 for a more comprehensive picture.
Not surprisingly, the data in this chart mirrors the economic cycles and shows the impact of recessions on RevPAR performance. The long-run average of submarkets with declining RevPAR is 29%. When taking out the years 1991, 2001 and 2009, the average drops to 23%. The year 2014 was arguably the best year ever, when only 4% of submarkets recorded drops in RevPAR. It is also worth noting that the recovery post-2009 was markedly faster than post-9/11. Back then it took three years, until 2004, for the number of submarkets with negative RevPAR change to drop below 10%; after 2009, this was achieved in only two years (by 2011).
Looking at the most recent data available, through February, there seems to be an uptick in the poorer performing submarkets from last year. Whereas last year we reported RevPAR declines in just around one in three areas, so far this year the number has increased to just under 40%. As you can see, the full-year data was markedly different from the February data (22% vs. 33%), but the increase observed so far probably points to an increase we should expect for the year-end 2017 number as well.
So, if I had to forecast where we go from here, I think it is not unreasonable to assume that in 2017 we will be reporting data around the long-run average.
One other way to interpret the chart is to look at data prior to and after the year 2000 and realize that the U.S. submarkets seem to move much more in lock step after the advent of price transparency. In other words, prior to the year 2000, submarkets reacted much more individually. Even during a recession in 1991, only just over half of the submarkets reported declining numbers. These days, it is much more common for a small minority of areas to be out of sync. In other words, it seems that the swings in performance become much more widely spread, no matter if we are looking at increases or decreases.
STR still predicts 2017 RevPAR growth for the U.S. of around 2.5%, but as always, all demand is local, all RevPAR results are local, and it will be very interesting to monitor how the submarket data develops over time. (STR is the parent company of Hotel News Now.)
*Special thanks to Claudia Alvarado from our Consulting group for running the data set.
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.