The U.S. hotel industry’s October performance results showed a return to RevPAR growth, driven by 2.7% ADR growth.
HENDERSONVILLE, Tennessee—The U.S. hotel industry’s RevPAR decline in September had a lot of readers on edge, but as expected and predicted, the October data was positive.
1. Demand in the driver seat
October revenue per available room increased 3.5%, driven by average-daily-rate growth of 2.7%. Both ADR and occupancy (+0.8%) increased, driven by healthy demand increase of 2.8%. The industry sold 114 million roomnights, 3.1 million more than last October.
Think about it: That is an additional 101 thousand rooms of new room demand each day. Where are all those folks coming from? Amazing.
Supply was up 2%, no surprise. Supply has really not moved much this year. Here are the monthly supply changes in 2018:
As a result of the continued demand increases, October’s absolute occupancy of 69.9% was the highest monthly occupancy we ever recorded in October. Absolute ADR and RevPAR were of course the highest October values ever.
The calendar was clean, with the same weekday (23) and weekend day (8) count as October 2017. But we did trade a Sunday from last year for a Wednesday in 2018, which of course had a slight positive impact.
Halloween is quickly becoming—or perhaps already is—a major non-religious family holiday, and meeting planners are staying away from planning events over that day/evening. So, this year Halloween fell on Wednesday—in 2017 it fell on a Tuesday—and that really killed the week for major events. At least last year you could have folks fly out Wednesday and meet Thursday, go home Friday. This year, the week was basically shot as Halloween fell midweek. Just something to keep in mind in future years.
2. New STR forecast
After reviewing the Q3 data, our friends from Tourism Economic together with the STR Review Board released the new STR forecast for the remainder of the year and 2019. (STR is the parent company of Hotel News Now.)
Yes, we decreased the 2019 number a wee bit and now suggest that RevPAR growth is sub-2.5%, all depending on the continued lack of pricing power. We feel good about the supply-demand dynamics. To me, the wild card is, was and remains ADR growth.
3. Segmentation data
Segmentation RevPAR increased at a healthy clip. Transient RevPAR increased 2.9%, driven by a good ADR increase of 3.4%. Group RevPAR was up 5.4%, driven up by ADR increasing 3.2%. So there seems to be some pricing power on the upper end, and that is an encouraging sign for the future. In fact, October transient ADR change was the highest this year.
Group ADR changes oscillate much more, but October still recorded the third highest ADR growth of 2018. After last month’s dismal demand changes, the October demand data was encouraging as transient rose 2.1% and group increased 4.7%. Of course, October is a traditional meeting month, but it is good to see that group demand can still climb.
Group and transient demand has increased year to date in the 2.5% range, and that bodes well for the full-year result. Traditionally, it seems that the full-year transient results come in slightly higher than in the prior year, so there likely is some more room to grow. Group RevPAR has a spotty record of maintaining the growth rate that was set through October, but if the trend from the last two years holds, it should increase.
4. Pipeline data
Another month, another flat count of rooms in construction. The number of hotel rooms in construction increased 0.6%, but is still pretty much in check. In fact, it has declined in nine of the last 11 months.
Looking at the larger picture, here is a new chart that shows the total number of rooms under contract by quarter and the change from the same quarter last year.
You can see that the growth in rooms under contract slowed and is now slightly accelerating, with just over 600,000 rooms counted. I still feel pretty good about that pace since it does not point to an overheated supply situation anytime soon.
Is it possible, though, that we are missing something and that the pipeline will suddenly spike next year or so? Glad you asked. We track the “unconfirmed” room count as well, and those are rooms that are not in a pipeline feed that we receive from the brands, but these are projects we are picking up because “we read it on the internet.” In other words, these projects are in the very early stages and might or might not materialize.
My theory here is that this is an early warning system—a canary in the coalmine, so to speak, or where there is smoke there is fire—and if we hear about a lot of rumors there is a chance that at least some of them will make it to the actual pipeline. So if we track a large number or a large percent change increase in this data it could indicate troubles in the future.
Looks like we have nothing really to worry about since the number of rooms in the ‘unconfirmed’ phase has actually declined and is doing so at an accelerating pace.
5. Comments about the US top 25 markets
So, yes, the overall U.S. did well last month, but its top 25 markets actually underperformed the rest of the U.S. RevPAR growth in the larger metros was 2.5% vs. 4.1% in all other markets. Part of the reason was, of course, Houston (-28.8%), but also Tampa (-10%) still nursed a hurricane hangover. So, when you exclude Houston, it adds 130 basis points, so RevPAR in the top 25 markets would have actually increased 3.8%. Overall, a total of five markets recorded RevPAR declines.
The reason for the slower RevPAR growth in the larger markets was also that occupancy declined 0.9% because demand only increased 1.6%, but the overall utilization still stands at a healthy 76.9%. Twenty of the top 25 markets recorded occupancy over 70%. At the top of the heap, this little town New York, New York, with 91.7% occupancy—wow! Keep in mind that supply growth in the larger markets is 2.6%, so that is where all the action is.
Here are the top and bottom five markets when sorted by RevPAR % change:
The top three markets each saw large increases in the group rooms sold. The bottom three markets losing RevPAR still had hurricane impacts to deal with.
Yes, there are winners and losers, but this NYC occupancy slide is here to make you feel warm and fuzzy:
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.