Month in review: US RevPAR growth softens in May
Month in review: US RevPAR growth softens in May
30 JUNE 2016 8:18 AM

April’s RevPAR growth of 5% was an outlier for the U.S. hotel industry. In May, the metric rose 1.9%.

CLEVELAND—Don’t let the byline fool you. You’re still in the right place. Jan Freitag—of “Freitag’s 5” fame—is out on paternity leave for the next two months. That means I’ll be guiding you through U.S. hotel performance this month.

Who am “I,” you ask? Patrick Mayock, former editor-in-chief of Hotel News Now and recent addition to STR’s Research & Development team. I can’t promise Jan-esque levels of insight, but I promise I won’t leave you empty-handed. (STR is the parent company of Hotel News Now.)

Still with me? Excellent! Let’s begin.

1. RevPAR returns to disappointing form
In his write-up for April, Jan dismissed a 5% increase in revenue per available room as an outlier rather than a reversal of recent weak performance. Turns out, he was right. (Perhaps he should change his byline to “Janstradamus” in future columns.)

RevPAR for May was up 1.9%, with a 2.4% increase in average daily rate offset by a 0.5% decrease in occupancy.

That 1.9% increase for RevPAR is the lowest this year—and lowest since August 2015 (+1.8%). To make matters worse, year-to-date RevPAR growth of 3% is the lowest this cycle since the recovery started in 2010.

Fortunately for me, you don’t need an advanced degree in economics to determine the root cause of such ho-hum numbers. Supply growth (+1.5%) outpaced demand growth (+1.1%) for the fourth month this year. More rooms to fill means more rooms need to be sold to sustain occupancy growth—and that isn’t happening. (May marked the fourth of five months during 2016 in which occupancy has decreased.) Throw in some sluggish rate growth, and voila—you’ve got sub-2% RevPAR growth for the first time this year.

Also hurting the numbers is tepid group demand. After a 7.6% jump in April, group occupancy fell 4.8% during May, but more on that later.

2. The industry is still strong on an absolute basis
First, let’s all take a deep breath, turn on our “happy” playlists and look on the bright side. From an absolute basis, the U.S. hotel industry is doing well. RevPAR of $83.01 is the highest of any May on record. The same was true for ADR at $123.87. In fact, all three key performance indicators—including occupancy—have set records when averaging the first five months of the year.

To add further sheen to the silver lining, May marked the 75th consecutive month of RevPAR growth. That’s what I call a sustained recovery cycle!

With the official start of summer last week, I’ll add yet another ray of sunshine: The week leading up to Memorial Day weekend was the third highest on record, with weekly RevPAR up 19%.

(Granted, we have a calendar shift to thank for that. The previous Memorial Day weekend occurred a calendar week earlier in 2015, but I’m not one to look a gift horse in the mouth.)

3. Group occupancy takes a hit
Whereas group business benefitted from a favorable Easter calendar shift in April, it has returned to disappointing form in May with an occupancy decrease of 4.8%. This marks four out of five months in 2016 when the segment has posted sour returns in that KPI.

Group ADR was in positive territory (+2.3%), but it’s still disappointing nonetheless. As Jan articulated last month, hoteliers arguably should be seeing faster rate growth given that events being held today were booked six to 12 months ago during a time of particularly rosy outlook for the hotel sector. Alas, not so. I share Jan’s concerns about group contracts being booked today; should we expect further softening—or outright declines—in group rates this time next year? I hope not, but I wouldn’t be surprised.

While we’re in the world of segmentation data, let’s take a quick peak at transient performance as well.

First, the good: Transient occupancy, ADR and RevPAR all are up!

Now, the bad: They’re not up very much.

Transient occupancy “rebounded” after a 0.1% decrease in April with a 1.5% bump during May. Rate growth was statistically insignificant at 0.1%. As a result, RevPAR barely moved the needle with a 1.7% increase.

4. Upscale continues to confound
Chain-scale performance mirrored that of the overall U.S. with occupancy decreases across the board. Luxury felt the brunt of the blow with a dip of 2.1%; nearly all others reported occupancy drops of less than 1%.

Rate hung in positive territory with increases between 0.7% (luxury) and 3.1% (upscale). RevPAR hovered in that same range, with the exception of luxury, which was the only one to report a RevPAR decrease (-1.4%).

More notable is the upscale segment, in which outsized supply growth (+5.6% compared to the U.S. average of +1.5%) has yet to prove an insurmountable hurdle for positive growth. Travelers clearly like what hoteliers are selling in this space and responded favorably yet again with a demand increase of 5.5% for the month (compared to +1.1% for the overall U.S.).

Jan in his April write-up said this upscale demand performance is the one data point that continues to confound him. He questioned whether people would keep coming simply because developers keep building while admitting April might have been an outlier. It appears May was as well.

5. Top 25 markets trail again
As has been a common theme of late, the top 25 markets underperformed all other markets during May. Occupancy declined (-0.8%), while ADR (+2%) and RevPAR (+1.2%) both failed to exceed 2% growth.

The rest of the U.S. reported an occupancy decline of 0.3% and growth in both ADR (+2.6%) and RevPAR (+2.3%).

Here again we see the ugly interplay between supply and demand. The top 25 markets are selling rooms at a faster pace than their counterparts throughout the rest of the U.S.; they’re also adding a lot more rooms.

Dallas once again emerged as a notable bright spot and sole recipient of the double-digit-RevPAR-growth medal (+12.9%). Bringing up the RevPAR rear were Houston (-14.2%) and Chicago (-10%).

Jan only found two top 25 markets with negative demand growth during April. May was less kind, with eight markets bearing that distinction—which shouldn’t be a surprise given the muted performance cited above.

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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