May performance data for the U.S. hotel industry tells much of the same story as prior months, with the notable exception that the pace of ADR growth slowed somewhat.
BROOMFIELD, Colorado—May was yet another month of positive revenue-per-available-room growth for the U.S. hotel industry, which marks 99 months of consecutive RevPAR growth in this cycle, according to data from STR, parent company of Hotel News Now.
For the most part, the story for this month is consistent with the trends for the first four months of 2018: record-high occupancy, strong demand growth and slowing construction trends. One clear difference was lower average-daily-rate growth in May, which based on the pace from the prior months we would have expected to be higher.
1. ADR monthly growth not as strong as prior months
For the first four months of 2018, ADR growth climbed higher each month, exceeding 3% in both March and April. This seemed to point to an increase in pricing power, which we have been expecting given the sustained high occupancy levels in the industry.
May ADR growth was still higher than in 2017 (+2.2%), but only by 0.4%, compared to a 0.8% increase over April’s ADR growth (+2.5% in 2017; +3.3% in 2018). Year-to-date ADR growth in 2018 is trending above 2017, but we saw a similar trend in the third quarter last year when ADR growth was at an unimpressive 1.4%. We will have to wait and see what happens with rate growth in the upcoming summer months.
Pricing power continues to be stronger at the bottom and top of the class tier. For May, rates at economy hotels increased 3.3%, midscale 2.9% and luxury 2.7%. Despite another month with supply exceeding 4% growth, upper-midscale and upscale hotels still managed to increase rates 2% and 2.2%, respectively, while upper-upscale hotels grew ADR 1.9%.
2. Group occupancy continues to decline; transient rates climb
After a surge in April mostly due to the Easter shift, group occupancy declined 2.2% in May, which has been an ongoing trend for the segment.
Transient occupancy increased slightly, but more importantly, pricing power is starting to accelerate. Year-to-date transient ADR has increased 2.6%, which is trending above last year. It will be interesting to see if this trend continues, since last year, transient ADR growth was anemic in the second half of 2017 (0.8% growth over July to December 2016) and contributed to overall muted rate growth nationally.
3. Top 25 markets growing rapidly; RevPAR growth for majority
New supply is still a challenge for most of the top 25 markets, but rates grew by 3% in May compared to 2.4% outside of the top 25.
For the month, Miami and San Francisco had the strongest RevPAR growth at 10.3% and 8.3%, respectively. With the Moscone Center expansion in 2017, San Francisco RevPAR was down 2.5% last year and is now recovering in 2018, up 4% year-to-date. Miami rate growth has been accelerating and supply growth has been limited. On a trailing 12-month basis, Miami is the top market in terms of ADR growth.
RevPAR declined in six of the top 25 markets in May. Denver (-10.4%) and Boston (-4.5%) experienced the largest RevPAR declines. Denver performance was driven by a 7.8% decline in occupancy, which is mostly due to a drop in group business compared to last year. Boston felt the impact of almost 5% supply growth for the month, combined with a drop in occupancy and rate.
Prior monthly analysis has highlighted the recent RevPAR growth in the New York market, which still remains below pre-recession peak RevPAR levels. The market continues to reach new occupancy peaks, recording the highest occupancy on a trailing 12-month average of 87.4% in May. This is despite having the most hotel rooms available to sell, while keeping in mind that roughly 13,000 rooms are still under construction. Rates are finally starting to increase after consistent declines for the past three years. ADR growth was 5.2% for the month of May, and RevPAR is up 5.4% year to date.
4. Fewer rooms under construction than last year
New supply continues at moderate levels nationally—yes, some markets are still facing a lot of new supply. The number of rooms under construction declined for the sixth consecutive month, compared to the same month last year. Compared to 10 years ago, there are roughly 19,000 fewer rooms in construction, and it seems that February 2017 was the construction peak for this cycle (194,000 rooms). Relative to existing supply, Nashville, New York, Denver, Dallas and Seattle remain the top markets with the most exposure to new construction.
5. 2018 RevPAR forecast adjusted upward
At the recent NYU International Hospitality Industry Investment Conference, STR President and CEO Amanda Hite presented STR’s updated forecast for 2018. Compared to the forecast presented in January at the Americas Lodging Investment Summit, the projections for demand—and therefore occupancy—and ADR were revised upward by one-tenth of a percentage point. The result is a forecast for 2.9% RevPAR growth in 2018—compared to 2.7% in the January forecast—while the 2019 forecast remains unchanged. This is due to stronger-than-anticipated performance in the first quarter of 2018, but still recognizing that the fourth quarter will be a tough comparison to the hurricane-inflated demand from 2017.
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.