Freitag’s 5 thoughts for 2018
Freitag’s 5 thoughts for 2018
15 DECEMBER 2017 8:45 AM

U.S. hoteliers can expect modest RevPAR growth in 2018, but there will be more markets among the Top 25 that see occupancy drop.

With 2017 coming to a close our thoughts and forecasts focused forward, here are my five things to look for in 2018.

More RevPAR growth
Yes, you heard it here first. OK, well, maybe not. I think all forecasters are saying the same thing now and have been saying it for a while. Average-daily-rate growth, while sluggish, will continue to drive revenue-per-available-room growth. As of this writing, STR projects that occupancy in 2018 will decline 0.2% because the increase in demand (+1.9%) will be outpaced by the supply increase (+2%). But ADR growth should be healthy (+2.4%) because the occupancies are still pretty high (even though not record high) and the tax reform bill should provide a further buffer against any sluggishness in the larger hotel industry.

More top 25 markets with occupancy declines
In 2016, there were 12 markets that showed occupancy declines.

Through October 2017, there are 14 markets with occupancy declines.

Of the other 11 markets, seven show a supply growth of over 2%, the expected US average for next year:

It is probably not a stretch to assume that in markets such as D.C., Miami and New York City, increasing demand will be on the fore front of hoteliers marketing plan. Unfortunately oftentimes that comes at the expense of room rate declines. And even if occupancies rise, the ADR decline may eat up those hard fought occupancy changes, dropping RevPAR.

Continued sluggish group demand
Despite the fact that we expect room demand to continue to increase, we expect—just like 2017—most of the demand increases will come from transient travelers. Group demand over the last years has been very steady so growth has been anemic (read: nonexistent).

We would have expected stronger group demand over the last few years given healthy GDP growth (spurring business meetings) and low unemployment (making incentive meetings important to avoid turnover as staff has more options to change jobs) but as you can see from the chart, the growth curve has hugged the 0% line for a while now. I am not sure I am seeing any changes in traveler behavior spurred by prolonged economic growth. I hope I am wrong, but if history is a guide, I will be right.

More focus on F&B
As room revenue growth remains sluggish, operators are trying ever harder to increase customer spending outside of the room. F&B spending is on the top of the list of auxiliary spend opportunities, especially on the catering and banquet side. Even through group room demand is not growing much, the revenue that is generated on top of the group room night can be sizeable.

As our F&B STAR report shows, the total catering and banquet spent per group room night was $279 for luxury hotels and $163 for upper upscale hotels (for the first half of 2017). The “other” category includes room and A/V rental and other charges. In an ever more competitive meetings landscape, the F&B offering can be the differentiating factor between just another meeting and a memorable culinary event that will make the meeting attendees want to come back.

Calendar shifts that will once again screw up your monthly budget
If you had to spend extra time with your owners explaining the monthly data because of how Easter and the Jewish holidays fell, we have semi-good news for you. The high Jewish holidays are both falling in September again, so they will not adversely impact the monthly data. However, Easter Sunday, which in 2016 fell in March and in 2017 fell in April moves back again to March. Not only will this impact the monthly data, but the quarterly results are also likely to be impacted. So, get your owners ready.

Halloween is shifting from a Tuesday to a Wednesday, and this holiday is rapidly becoming a family holiday with impact on meeting planners. It is likely that the whole week will be a slow meeting week as meeting planners book around this week to let parents be with their ghouls and goblins.

Lastly, given the contentious nature of U.S. politics, it is possible that a lot of travelers will stay home the eve of 5 November to cast their vote on 6 November. This could impact occupancies that night.

Given all the potential headwinds, keep in mind we still project positive RevPAR growth for the foreseeable future. I wish you a great start into the year and a prosperous 2018.

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.

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