The U.S. hotel cycle reached 100 months of RevPAR growth in June with 4.6% growth at the start of the summer season and end of the second quarter.
HENDERSONVILLE, Tennessee—The U.S. hotel industry continued its solid performance run in June. At this point, it is no surprise that results were good, and with supply in check and gross domestic product growth healthy, industry participants expect a good or very good rest of 2018.
1. June marked the 100th months of RevPAR growth
Hekatophobia—the fear of the number 100—be damned. June revenue per available room increased by 4.6%, driven by healthy increases in occupancy (+1.7%) and ADR (+2.8%). And for those of you keeping score at home, this is also the 98th consecutive month of ADR growth. June’s increase in occupancy (+1.7%) is the strongest this year.
This was caused by the strongest monthly room demand we ever recorded: 117 million roomnights sold. The demand percent change (+3.7%) was also the healthiest this year. I mean, think about it: We are way long in the cycle—100 months of RevPAR growth—and still somehow the brands and hoteliers are able to attract more than 4.2 million more guests than last June. As I said before, this clearly points at very healthy group, business transient and leisure demand, supported by still undeterred GDP growth and low unemployment numbers.
Supply increased 2% during the month, and June marked the seventh consecutive month of 2% supply growth. Technically speaking—and I know how much you missed me talking technically to you—the growth was actually a bit lower in June (+1.979%) than in May (+2.027%) and April (+2.049%). Of course that is not a trend, but it’s interesting to ponder: What if the supply growth percent change actually peaked already?
2. Behold: Group occupancy increased 0.5%
When I left, I had thought we would not see a positive group occupancy change this year, and luckily I have been totally wrong—just like my bet for the FIFA World Cup champion, but that is a different story. No, you may not ask what Mannschaft I picked.
So, group demand increased 2.6% and that was enough to lift the segment occupancy. Last month, group occupancy was down 2.3%, so there probably was some shift into June from May. But let’s not nitpick and just take a positive group occupancy increase when we get it. Group ADR was a mediocre—not great, not bad—at 2.1% growth. Transient RevPAR jumped 4.2%, driven by ADR increase of 2.9%. Transient occupancy was also up (+1.3%) but that is not a surprise at this point given what came before.
So far this year (excluding the Easter shift impact) the segmentation demand data has been quite healthy as the table shows:
And with supply growth in check, I like where the industry stands today. And you see when you do the quick and dirty math the group demand data has accelerated in Q2 (+4.4%) versus Q1 (0%). Let’s see if that is a pattern we can build on in Q3.
3. Nothing really changed on the pipeline front
Developers still love the industry, but the number of rooms in construction has now hovered around 186,000 for four months. The changes from the same month last year are also small, but (more importantly to me) they are negative, now for the seventh month in a row.
And look at this early warning indicator. I am charting here the percent change in the number of rooms in the “whisper” stage, what we call “unconfirmed.”
For the last two-and-a-half years, the unconfirmed number has declined, but this month it dropped by an unprecedented 57%. This is also a good sign for the coming health of the industry, we will likely not overbuild and any end to the cycle will be—as usual—a demand shock.
4. Top 25 markets sizzling in summer
With summer in full swing, the top 25 markets are full as well. Occupancy clocked in at a whopping 80.2%, implying that some markets were much higher (see below). RevPAR increased 4.6%, driven up by very good pricing power (ADR +3.1%). A 4.2% demand increase easily outpaced the 2.6% supply increase, so right now the “fishing is easy.” Again, 4.2% demand growth is just the average; below we’ll talk about markets that grew demand much more powerfully.
Here are the seven markets that reported occupancies at or in excess of 85%. I am charting with this their respective pricing power—or lack thereof, like in Denver.
New York City was able to sell more than nine out of 10 rooms each night, so basically the city was totally full all the time. It’s good to see finally some signs of life on the ADR front in NYC. Are revenue managers finally trusting that the high occupancies will indeed hold as STR has reported four years running? Results this year have been much better than last year as this chart shows.
Good going NYC hoteliers, looks like some of you kept your New Year’s resolution regarding ADR growth.
5. Closing the book on a strong Q2
RevPAR increased 4% year over year in the second quarter, driven up by ADR growth of 2.9%. Even better, the RevPAR increase from Q1 to Q2 shows an acceleration:
And given that the Q3 comp is “only” 1.9% growth, it stands to reason that the next quarterly report will also be quite good.
Then, however—cue ominous music—we will hit the hurricane comps in the fourth quarter, and it will be quite interesting to see if we can eek out any meaningful RevPAR increase given the large, one-time demand influx that happened last year. Call me in November and we can see what happened.
Jan Freitag is the SVP of lodging insights at STR.
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.