Central business district and non-CBD hotels in the top 25 U.S. markets have recorded positive RevPAR growth after the recession, but growth is slowing down.
HENDERSONVILLE, Tennessee—Hotels outside of central business districts in the top 25 U.S. markets achieved higher revenue-per-available-room growth for year-end 2017 than CBD hotels, according to data from STR, parent company of Hotel News Now.
This article compares hotels in the 32 CBD submarkets of the top 25 U.S markets against all other hotels in the top 25 U.S markets (135 submarkets). Data is reported on a rolling 12-month moving average from January 1990 to January 2018 unless otherwise stated. We’ve broken the timeline into three cycles, with recessions and the corresponding continuous performance declines symbolizing the end of a cycle.
In terms of annual RevPAR growth, CBD hotels performed better than non-CBD hotels in the last two cycles (1990 to 2009). For 13 out of 20 years, CBD hotels achieved higher RevPAR growth than non-CBD hotels. Since the Great Recession, non-CBD hotels have attained higher RevPAR growth than CBD hotels in seven out of eight years (Figure 1). For the period ending January 2018, CBD hotels recorded RevPAR growth of 1.5% (to $156.65) while non-CBD hotels achieved growth of 2.5% (to $93.46).
Both subsets are achieving RevPAR growth mostly due to their ability to grow average daily rates. As Figure 2 highlights, non-CBD hotels have posted higher ADR growth rates since the Recession. However, CBD hotels in January 2018 achieved higher absolute levels of ADR ($199.42) than non-CBD hotels ($130.55), representing a 52.7% rate premium. This premium is the lowest realized since August 1997.
Another way to analyze ADR is through performance on compression nights, or when a market is at 95% occupancy or higher. Both CBD and non-CBD markets recorded fewer compression nights in 2017 than in 2016. CBD hotels (1,145 compression nights) had 56 fewer compression nights while non-CBD hotels (1,364 compression nights) had 281 fewer nights. However, both groups were able to grow their rates during these nights as compared to the rest of the year. CBD hotels achieved a 46.6% rate premium over non-compressed nights while non-CBD recorded 44.1% for the same period.
With recent conversations surrounding expenditures in the hospitality industry, analysis on rate growth in relation to inflation rates is necessary to ascertain if hotels are keeping up with current market cost. Figure 3 illustrates the difference between consumer price index percent change and rate percent change over the same quarter for each group. This difference is the real ADR percent change.
On average since the Recession, both CBD hotels and non-CBD hotels have realized growth after CPI adjustments with 2017 being an anomaly. CBD hotels recorded three consecutive quarterly declines, with the worst being in Q3 2017 (-2.9%). This was the lowest decline since Q1 2010. Non-CBD hotels recorded two quarterly declines in 2017, with its worst being a 0.7% decline in Q3.
Occupancy growth for the two data sets have trended similarly over the past three cycles. As new supply expectations materialize, we analyzed pipeline data to formulate an outlook for 2018. If all projects under construction and in the final planning phases are completed in 2018, this would increase room count by 11.7% for CBD hotels and by 8.6% for non-CBD hotels. However, most projects in these phases are more likely to open in the next two years.
Overall, CBD hotels have performed better than non-CBD hotels in terms of RevPAR growth, with the current cycle being the exception. ADR growth has boosted RevPAR growth for both CBD and non-CBD hotels since the Great Recession. We look forward to analyzing the impact of potential supply growth for both groups.
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.