A deeper dive into group demand dynamics
A deeper dive into group demand dynamics
25 MAY 2018 7:12 AM

Historically, group demand declines in the top 25 U.S. hotel markets have dragged down that metric for the total U.S.

HENDERSONVILLE, Tennessee—Over the last few quarters, we have been reporting that group demand has been decreasing and the anemic growth that was observable in the past has actually stopped.

But transcripts from the first-quarter earnings calls of publicly traded hotel companies seem indicate that group booking pace on the books is strong.

STR, parent company of Hotel News Now, has fielded quite a few questions about this apparent disconnect. This article digs a bit deeper to hopefully shed some light onto the issue.

First of all, a clarifying definition: STR data is always backward-looking. We report on actual rooms consumed as reported by our clients. Our sample set is the combination of luxury and upper upscale rooms, from both brands and independent hotels.

The earnings call are forward looking and are talking about rooms on the books in the future. The timeframes can vary widely. Some companies simply report the number of group rooms that were booked in the last quarter for any day in the future, be it five months or five years out.

So, our data and the data that is reported cannot and should not be compared. That said, there is obviously a signaling effect in the future data to the data that we report. But here also, caution is warranted. We report on the nation as a whole, and some company trends may vary materially from what the United States trends are.

In the last few years, the annualized group room demand growth chart has not shown much to get excited about:

In fact, lately we have reported that group demand has declined. The absolute values, of course, mirror that trend. The question then is if this decline can be pinpointed to the larger markets or if the decline is felt more severely in smaller markets outside of the top 25 largest lodging markets (excluding Las Vegas).

Here are the absolute room demand numbers between 2012 and 2017 and the corresponding data for the top 25 markets:

So the decline after 2016 is noticeable in both segments.

To show this point another way, we charted the group demand in the top 25 markets as a ratio of total U.S. group demand. Despite the U.S. numbers fluctuating, the ratio has not moved.

So, of the group demand decline in the U.S. of some 309,000 rooms, the top 25 markets decline of roughly 192,000 rooms makes up a significant amount—around 63%.

We then looked further into the demand changes by top 25 market to determine if the decline was uniform. It turns out not to be. In fact, 10 of the top 25 markets registered group demand declines between 2015 and 2017, for a cumulative loss of 1.1 million nights.

San Francisco, where the Moscone Center was closed for renovations, recorded the steepest decline.

So, given this steep cumulative decline, it stands to reason that other markets gained share. Here is a list of the remaining markets and their group demand increases between 2015 and 2017:

So, over the period, Houston, which hosted the Super Bowl in 2016, registered the strongest influx of group rooms.

Looking at this data in aggregate allows us to draw a few conclusions:

  1. The group demand decline is happening across the U.S.
  2. Forward-looking, on-the-books data from individual companies is not a true indicator of how the total U.S. group demand will actually materialize, but we are willing to take it as a good sign for the future.
  3. Within the top 25 markets, there are gainers and losers probably pointing at the fact that large group travel managers rotate their events.

We will continue to observe how group demand moves as 2018 progresses and report further.

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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