A look at where demand is going as US top 25 lose share
A look at where demand is going as US top 25 lose share
30 JUNE 2020 8:42 AM

In the first of a series of Hotel Data Conference webinars, STR’s Brad Garner explores underperforming top 25 hotel markets, which in 2019 commanded 43% of all rooms revenue in the U.S.

REPORT FROM THE U.S.—Hotels in the top 25 markets in the U.S. have lost 3% of revenue share year to date in 2020, STR data shows.

STR is the parent company of Hotel News Now.

In the first of a Hotel Data Conference webinar series, Brad Garner, SVP of client services & relationships for North America at STR, delved into top 25 performance and the markets that are “stealing” that share of revenue from them.

As of December 2019, the top 25 markets held about a third (32.3%) of all available hotel rooms in the U.S., and a larger share (35.8%) of the total rooms sold, indicating their “penetration of demand is in excess of their room supply,” Garner said.

The Top 25 markets’ share of all rooms revenue in 2019 was 43.1%, which is “powerful commentary on their ability to generate and command revenue,” he said.

Source: STR, © 2020 CoStar Realty Information, Inc.

However, the COVID-19 pandemic has dented that ability.

Year-to-date 2020, the top 25’s share of supply (31.4%) and demand (34.2%) shifted by only tenths of points, while share of revenue fell 3% to 40.6%, STR data shows.

As pandemic restrictions and fears have hit travel demand, no market has been immune, but the revenue impact has been more pronounced in the Top 25.

In April, at the height of the pandemic, revenue per available room was down 80% for the total U.S., and down 84.9% in the Top 25 markets. In May, total U.S. RevPAR was down 71% and Top 25 RevPAR down 78.3%.

Source: STR, © 2020 CoStar Realty Information, Inc.

“This is the carnage that is COVID-19,” Garner said. “The takeaway is that it’s bad, but it is getting better.”

Weekly data as of 20 June shows that top 25 RevPAR is now down 73% year over year, driven by a 52.7% decline in occupancy and a 43% drop in average daily rate, “not quite half and half,” Garner said.

“Before we went into the pandemic, the top 25 ran a 15% to 20% premium in terms of occupancy. That has now inverted, and all other markets command a 10% premium,” he said.

The rate premium for the top 25 over all other markets has also “really eroded” to around $2, he said.

“Where is that stealing of share coming from, particularly with revenue? … The top 25 is certainly underperforming, while economy chain scales continue to hold up well in leisure, drive-to markets,” Garner said.

Source: STR, © 2020 CoStar Realty Information, Inc.

Extended-stay hotels are also holding up “relatively well,” he added.

As demand rises, particularly in those drive-to markets, only eight of the top 25 markets had absolute occupancy of 40% or greater as of the week of 20 June, the data shows.

Pricing power has also been slow to rebound, with only 16 of the top 25 markets able to command ADRs of $100 or higher for the same week.

In RevPAR percent change, Garner noted there are outliers. For example, “Phoenix is outperforming Tampa,” Garner said, while “Oahu, being landlocked, is facing a really challenging decline in RevPAR, mostly from the ADR side.”

Group business is not helping, being “basically nonexistent right now,” he said, aside from group bookings for first-responders in virus hot zones such as New York City.

The effect of the pandemic on hotel supply is likely to make a difference for top 25 markets, which have in excess of 40% of all rooms in construction the U.S.

“We can expect a hard tap on the brakes for any type of development, and look for abandonments and deferments to increase over the next several months,” Garner said.

Signs point to hotel demand rebounding. “This is not going to be that deep-V-shaped recovery, but more of a swoosh recovery,” he said.

“ADR growth is the great unknown. We always know demand comes back, and ADR growth can be very stubborn,” he added.

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