5 notable misses in forecasts for 2017
5 notable misses in forecasts for 2017
08 JANUARY 2018 8:22 AM

The U.S. hotel industry is often tough to predict, so here are five metrics I got wrong at the start of 2017.

Now that the year is over it’s time to take stock. I always enjoy looking back to see what trends, insights or data points I totally missed at this time last year when I thought about 2017.

Here are the five that I missed that I thought mattered most.

 Demand increases above expectations
At the ALIS conference in late January, I stood on stage and presented with full conviction the STR forecast that U.S. demand growth in 2017 was going to be healthy—but not great—and that the industry would increase the number of rooms sold by 1.7%. (STR is the parent company of Hotel News Now). At the same time, we expected that the supply increase would around 2%. And I think the supply growth number will be roughly where we said it would be.

But, boy, demand growth accelerated in a way that I did not expect. Not only were we wrong when predicting that demand growth would decelerate from 2016, but it actually accelerated and now stands at 2.6% through November.

• MORE: Freitag’s 5 thoughts for 2018

Now, the truth is that if STR misses its forecast, I would much prefer we miss on the upside, so there are more smiles—and maybe bonuses—in the industry. But nonetheless, the prolonged GDP growth fueled demand growth that—according to our friends at Oxford Economics—puts the total number of rooms sold per capita well above the long-run average. Eventually this trend will revert back to the mean, but for now let’s enjoy the high demand numbers and full hotels while they last. Let’s also hope that STR’s 2018 forecast is too low again.

 Natural disasters were more impactful
I have a new favorite key performance indicator: accumulated cyclone energy (ACE). The National Oceanic and Atmospheric Association tracks the combined intensity and duration of hurricanes. (What is the difference between a hurricane and a cyclone? Glad you asked.) Here is a line from their season-ending news release that gave me pause:

“In terms of Accumulated Cyclone Energy (ACE) … preliminary data indicate that the 2017 season was the most active since 2005.”

Did I predict this and the impact on Houston and Florida? Certainly not. In addition, numerous hotels were partially or fully destroyed in Texas, Florida and the Caribbean. And these impacts will last. Now, truth is that the displaced people lifted occupancies across Texas and Florida and will likely have a positive demand impact well into Q2 2018.

For the Caribbean, the picture will be very different, since TV news coverage seemed to project a picture of a region being wiped off the map and closed for business. The reality is, of course, is less dramatic, but the PR effort required to convince travelers to come back to the Caribbean will be mighty.

So, while no one could have projected the brute force of the hurricanes bearing down on the eastern part of the U.S., I think the takeaway is clear: Climate change is real. Storms will get more powerful. Hoteliers are ultimately in the business to provide shelter and need to be prepared for when—not if—their business gets disrupted.

Still no Airbnb effect in the numbers
In 2017, the U.S. hotel industry had more rooms available than ever, sold more rooms than ever and generated more room revenue than ever. All KPIs—occupancy, average daily rate and revenue per available room—were at all-time highs. But the question I received more often than any other in the 39 presentations I conducted in 2017 was: “What is the impact of Airbnb?”

The only way I can answer this is to say: “The industry sold more rooms than ever; the occupancy was the highest ever.” In other words, even despite the fact that Airbnb grew units and customers, the hotel industry did the same, and it is really hard to pinpoint an effect on the U.S. numbers. Did Airbnb take some customers that used to stay in hotels? Probably, but again, in our national numbers this is hard to show.

• MORE: Airbnb, Expedia execs answer 10 pressing questions

I would have expected that by now the impact of this disruptive force would be much more pronounced and traceable in our data. Even in New Yok City, where Airbnb has a very visible presence, the hotel occupancy was 86.5% through November and year-to-date room demand increased 5.2%. That makes it hard to pinpoint any direct impact of Airbnb.

The number of rooms in construction has stopped growing
Throughout 2016, the number of rooms in construction grew year over year by around 30% for most months. That growth rate has slowed; actually in October we reported for the first time since 2011 that the number of rooms in construction declined year over year—not by much at 0.1%, but hey, it’s a decline. In November, the year-over-year growth rate stands at 0.6%, so basically flat with November 2016. I did not forecast that bankers and developers would heed the call that the RevPAR cycle is a bit long in the tooth and that after 93 months of monthly growth (through November 2017), all good things must come to an end.

Interestingly, this cautious behavior might be just what could save the industry in the long run as demand growth continues to bumble along and now future supply increases might be in check. So, for 2018 I am happy to project that rational bankers could be the industry’s best friends.

Demand growth is all transient, all the time
The current demand records are all well and good and are probably going to last. But when unpacking the data into the segments of group and transient demand, it quickly becomes clear that something is amiss. In particular, the lack of group demand is startling.

STR had certainly projected more room demand for the foreseeable future, but my projection was that this growth would follow historical norms. In other words, for the hotels that are reporting segmentation data to us—mostly higher-end luxury and upper-upscale hotels—group rooms make up roughly one-third of all room demand, and I thought that the projected demand increase would split along those lines.

It turns out that group room demand this year actually declined through October (-0.6%). The ratio of group versus transient rooms has declined since 2011. Back then, 36.3% of the high-end demand we tracked was generated by groups; through October 2017 the ratio had decreased to 34.1%. So it looks like we are not actually growing the “pie” of group rooms; we’re simply shifting the existing pieces around the country. I had not expected that.

These are just a few things I missed. The column would be too long if I kept digging. I look forward to seeing how 2018 turns out and what major trends develop that I have no idea about today.

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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