Top 25 US markets seem to be absorbing supply concerns
Top 25 US markets seem to be absorbing supply concerns
28 AUGUST 2018 7:33 AM

Some of the top 25 U.S. markets, such as Houston and Orlando, are making a performance comeback. And while existing supply percentages are still high, it might not be as big of a concern as it seems.

NASHVILLE, Tennessee—The top U.S. hotel markets are faring well in terms of overall performance despite hurdles in 2017, such as the impact of hurricane season and calendar shifts.

While an abundance of supply has been a looming issue across the U.S., data from STR—parent company of Hotel News Now—supports the idea that it might be time to let go of some of that worry, at least for the top 25 markets.

The top 25 U.S. markets account for 32% of all rooms available in the U.S., 35.7% of all rooms sold and 43.4% of all industry revenue, according to Brad Garner, STR’s SVP of client services and relationships, who presented during the “A decade of hits: The top 25 markets” data dash session at the Hotel Data Conference. Garner looked back at chart-topping, one-hit wonder and life-time achievement market performers and more over the past 10 years.

Here are some top takeaways on past performance of the top 25 markets and how the markets might shape out in the near future.

Pipeline numbers
According to STR data as of June 2018, year-to-date total U.S. supply growth capped at 1.9%. And as for most rooms in construction, New York led the way with 12.8%, followed by Orlando, Florida, with 6.9% and Dallas with 6.6%. Nine markets, including Nashville (12.5%), New York (10.6%) and Denver (9.2%), have exceeded 5% of their existing supply waiting in the pipeline.

“I don’t know how to caution you on how much supply is enough,” Garner said. “Nashville seems like we have enough rooms, although there’s still more coming.”

Garner said New York might need to “tap the brakes” since it is finally starting to absorb some of these new rooms with pricing, “although a lot of that’s limited-service, which if you think of pricing for what’s typically newer versus limited-service may be a lower price point, which works to reduce the overall rate for New York.”

“We’ve heard (overall U.S.) supply is not an issue as a group; (so) 2.5% supply growth for the group of top 25 markets is probably not a concern,” Garner said. “There are some markets—Nashville, Dallas—that may be a concern, but arguably and probably some supply growth may be warranted in a few of those markets.”

(Source: STR)
(Source: STR)

As a whole though, the existing supply percentages for rooms in construction also isn’t a concern, Garner said. For some markets, it may be a “cautionary tale.”

One shocking market to pop up on the list was Orlando, Garner said, as he’s seen it cool off for some time. However, the market’s rooms in construction compared to existing supply is up more than 3% compared to last year, and five of the top 10 projects under construction are in Orlando.

“I think they’re prepping for a couple of things, in my opinion,” he said. “They’re building a lot of rooms right now.”

Key performance indicators
As far as key performance indicators, Garner said he was impressed that some of the top 25 markets rose above national averages or were approaching it.

He said 19 out of the top 25 markets are at more than 70% absolute occupancy, meaning the markets are “fully compressed,” and 16 markets are flat or above with occupancy growth, compared to this time last year. But Houston and Seattle have seen a lot of supply growth, which is affecting their ability to drive occupancy, he said.

(Source: STR)

Four markets reported average daily rate higher than $200 on year-to-date basis, Garner said, beating the national average of about $130. The highest ADR performers included Miami/Hialeah, Florida; Oahu Island, Hawaii; San Francisco/San Mateo, California; and New York. The U.S. national average for ADR percent change is 6.6% growth and six markets reported growth in excess of 4%, he said.

(Source: STR)

A total of 22 of the top 25 markets reported flat year-to-date RevPAR performance or RevPAR growth through June 2018, and the total U.S. year-to-date RevPAR growth is at 3.8%. he said several markets posted year-to-date RevPAR growth above the national average, including Philadelphia, Pennsylvania-New Jersey; Orlando; Miami/Hialeah and Minneapolis/St. Paul, Minnesota-Wisconsin.

Forecasts and markets to watch
Although Houston has seen a recovery, the market still has a ways to go, Garner said. There was some lift from the demand generated by Hurricane Harvey as well as a rebound on oil prices, but STR forecasts Houston should see 2018 full-year RevPAR decline of 4.3%.

“But from where they come from, that’s a pretty positive storyline,” Garner said.

Other markets that STR is projecting to have declining RevPAR for full-year 2018 are St. Louis, Missouri-Illinois (-0.3%) and Washington, D.C.-Maryland-Virginia (-0.1%). For 2019, the only market that STR is expecting to have negative RevPAR is Minneapolis/St. Paul (-1.4%), because of the tough RevPAR comps (+7.2%) its hotels gained from hosting Super Bowl LII in February.

(Source: STR)

Looking back over the past 10 years for the market grades and awards part of his presentation, Garner called out New York as the “life-time achievement” performer. The first thing that jumped out to him was that the market commands 6.1% of share all U.S. industry revenue, which he said is “a huge number.” The next-highest revenue performers were Los Angeles (3.3% share) and D.C. (2.9% share).

New York reported the highest absolute occupancy in a 12-month moving average of 87.4%. However, New York is still $20 below peak ADR, which was in 2008.

Orlando is the hotel market to watch heading into 2019, Garner said. With plenty of supply in the pipeline, top projects under construction and major attractions like the Wizarding World of Harry Potter and Disney’s Star Wars experience coming fall 2019, “they’re ramping up,” he said.

Orlando currently ranks fourth in highest absolute occupancy (79.6%), following New York (87.4%) Oahu (84.3%) and San Francisco (82.5%). STR is forecasting Orlando’s full-year RevPAR growth to be 2.3% in 2018 and 2.9% in 2019.

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