Freitag’s 5: RevPAR growth cools in January
 
Freitag’s 5: RevPAR growth cools in January
25 FEBRUARY 2016 8:33 AM

The U.S. hotel industry saw RevPAR growth of 2.4% in January. Now the conversation is shifting to the components of RevPAR growth.

HENDERSONVILLE, Tennessee—In physics, molecular diffusion describes the movement of liquid particles at certain temperatures. The colder it gets, the less the particles move. It turns out revenue per available room for the United States hotel industry in January was such a particle. Baby it’s (or was) cold outside.

 
Here are five things you need to know about performance data for the U.S. hotel industry in January. All data is from Hotel News Now’s parent company, STR.
 
1. RevPAR increased 2.4% 
This increase is the lowest January RevPAR growth since 2010 (-7.7%), and it’s just a poor showing all around. The long-run January average is +3.2%, and the average for January between 2011 and 2015 was +7.8%. 
 
The calendar was clean. We had 21 weekdays and 10 weekend days just like in January 2015. But not all weekdays are created equal, and this year we traded a Sunday (2016) for a Thursday (2015) with obvious negative implications. I mean, who wants to travel on a Sunday? 
 
2. RevPAR growth is now in its 71st month
We do not see that trend changing anytime soon. No, seriously, we don’t. 
 
The conversation is now shifting to the components of RevPAR growth. And as long as average-daily-rate growth is healthy, even a slight decline in occupancy will easily be made up. 
 
Occupancy declined 0.3%, which was only the third time in the last 72 months—since February 2010—that growth was negative (the other times were: August 2015 because of the Labor Day shift and June 2013). Occupancy clocked in at 54%, now the second highest ever recorded for the month. 
 
The reality is that room demand in January 2016 was still 1.2% higher than last year. So it is easy to get caught up in the occupancy decline when indeed the industry had once again a record-breaking demand month with more than 83 million roomnights sold. 
 
3. Supply growth is heating up
Rooms available increased 1.5%. On the surface that number looks like the same as December. However, when looking at the hundredths digit, you see December’s supply increase was 1.48% and January was 1.53%, so there was still a slight sequential uptick. 
 
Here is the growth over the last few months:

Month Supply % Change
Aug 15 +1.1%
Sep 15 +1.2%
Oct 15 +1.3%
Nov 15 +1.4%
Dec 15 +1.5%
Jan 16 +1.5%


This is not a surprise, and I would actually expect a sequential 0.1-point supply increase each month for the near future. And that growth is the headwind that will slow the performance of the industry players. 
 
Let me reiterate once again that our friends from Tourism Economics (still) do not forecast a recession in 2016, so the slowing in performance is exactly that—a slowing down, not a base jump off of a (hotel) tower. 
 
 4. The U.S. pipeline continues to chug along as expected 
Rooms under construction increased 17% to 149,500 rooms, and rooms in the final planning stage were up 25% to 188,000 rooms.
 
I interpret this to mean that the pipeline is full and that even as hotels open (and move out of the pipeline) the new supply will keep on coming. We track open dates, and right now there are 113,000 rooms with an open date of 2016. 
 
In 2015, we added roughly 79,000 rooms. However, that is a net number, taking out closings, etc. So, even adjusting for taking rooms out and pushing some into 2017, in 2016 we might open close to 100,000 rooms. 
 
In 2017, the data looks even stronger. Owners and brands tell us that 233,000 rooms have an open date of next year. Some of these will fall out or be pushed back, but that could easily mean 150,000 or so new rooms. If indeed the economy just muddles along and we see no real economic downturn, this “self-inflicted gunshot wound” of new supply will be the factor that slows down the hotel industry growth post-2017.
 
5. RevPAR in the top 25 markets didn’t outperform
Just like in December, RevPAR growth in the top 25 markets (+2.2%) was actually worse than in all other markets (+2.6%). 
 
That said, occupancy in the top 25 markets held (+/-0%) and dropped -0.6% elsewhere. So that implies a little bit more pricing power in other markets (ADR, +3.2%). In the larger markets, ADR growth was basically driven by group ADR (+2.9%) since transient ADR was flat (+/-0%). Group occupancy got hit hard, probably because of Winter Storm Jonas.
 
Here are some noteworthy group occupancy percent changes:

Market January Group Occ % Change
NYC -2.2%
Boston -4.1%
Washington -14.7%
Philadelphia -17.8%
Chicago -22.3%

 
 
Of course, there is always the sunny side of the street. For example, Oahu, Hawaii’s group occupancy was up 69.4%.
 
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.
 

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