Both STR and CBRE have lowered their expectations for U.S. RevPAR growth for full-year 2019 and 2020.
NASHVILLE, Tennessee—While hope remains the hotel industry—and the broader economy—will be able to avoid a recession in both 2019 and 2020, projections for full-year revenue-per-available-room growth have been scaled back following a weaker-than-expected start to 2019.
During the “End of the upcycle? The industry forecast” panel at the first day of the Hotel Data Conference, both STR (Hotel News Now’s parent company) and CBRE announced their updated projections for both 2019 and 2020.
STR and Tourism Economics now project 1.6% RevPAR growth in 2019. Previous forecasts had originally projected 2.3% RevPAR growth at the beginning of 2019 and revised down to 2% at the NYU International Hospitality Industry Investment Conference in June.
STR President and CEO Amanda Hite said a continued lack of pricing power could make it hard to even meet the most current average-daily-rate-growth projection of 1.4%.
“To get to 1.4%, it will have to be stronger in the second half,” she said. “That may be difficult, but the demand is there. So, we did downgrade (rate growth), but we think we can achieve that.”
CBRE also lowered its forecast, with senior managing director of CBRE Hotels Americas Research Mark Woodworth saying CBRE’s 0.9% projection for full-year RevPAR growth marked a 125-basis-point decrease.
He agreed rate has been more of an issue than occupancy.
“Pricing power continues to erode, and in the back half of the year it’s going to undermine the ability to gain meaningful price increases,” he said.
Hite noted this is the largest divergence of the two companies’ projections for growth in recent memory, while 2020 projections are a bit closer.
STR is calling for 1.1% RevPAR growth in 2020 with 1.4% ADR growth and a 0.3% contraction in occupancy. CBRE projects 1.2% RevPAR growth in 2020 with 2% rate growth.
Woodworth noted he has continued confidence that a recession is still far off.
“Next year, we feel a little bit better about it, and we comfortably bought into the economic view (that there will not be a recession in 2020),” Woodworth said.
With that said, Woodworth acknowledged the hotel industry might be at a point of a new normal for rate growth, and that change could be driven by changes in consumer behavior that have negatively impacted other sectors like retail.
“You can make the argument in many industries that the internet wiped out pricing power,” he said. “There’s no reason to not think the same in lodging.”
Operators coping with a slowdown
Mark Laport, president, CEO and founder of Concord Hospitality Enterprises, said his company has $1.8 billion committed in its development pipeline, which means slowdown talk has him feeling a bit more anxious. But building into a downturn isn’t necessarily a bad thing.
“We have 13 hotels under construction, and right now I’m thinking I’m nuts,” he said. “But truly, historically with our best developments we’ve pulled the triggers in downturns. You can buy (construction) labor and building materials for less at certain times, and we’ve already seen that softening in some markets.”
He noted his company has continued to enjoy strong operating metrics even as growth has slowed, with gross operating profits up 3.6%, which he realizes can’t last forever.
“That’s probably not sustainable with increasing labor costs,” he said.
David Duncan, president of First Hospitality Group, said his dual role as a developer and operator is fueling conflicting feelings on the possibility of a downturn.
“Right now, I’m happy as an operator, but as a developer, I can’t wait for the crash so I can buy stuff cheap,” he said.
Because of the ever-shrinking topline growth, companies like First Hospitality Group and Concord are putting ever more focus on managing costs, particularly labor, which is both expensive and hard to come by.
Duncan said hotel companies like his will have to focus more and more on culture because they can’t win simply by throwing more money at candidates.
“How you retain that best-in-class talent is exceedingly important,” he said.
But Laport noted just finding people willing and able to work some positions can be a massive challenge.
“It’s tough to get people into hotels from an hourly standpoint,” he said.
And while the nationwide picture in the U.S. continues to show an overall slowdown, Duncan pointed out there are still pockets of optimism around the country going forward. He pointed to Chicago in particular, which has had a tough 2019 but has early projections of a strong rebound in 2020. At the same time, you can’t escape the headlines.
“Above the fold in The Wall Street Journal and The New York Times, all the newspapers are talking about the economy,” he said. “And when people get the jitters (about a recession), sometimes it’s a self-fulfilling prophecy.”