U.S. Hotel Industry Update: Fall 2017

by Jan D. Freitag, SVP, STR

The U.S. hotel industry continues to break records with more rooms available, more rooms sold and more room revenue generated than ever before. Through August 2017, all key performance indicators—namely occupancy, average daily rate (ADR) and revenue per available room (RevPAR)—were at all-time highs. In fact, RevPAR has grown year over year for 90 consecutive months—more than seven years in a row. 

So, the question among operators and analysts is: “How long can this last?” In other words, can the industry maintain the momentum and achieve even higher performance levels? Or, are there some fundamental forces at play that could slow industry growth? STR’s forecast for 2017 projects RevPAR to grow 2.3%, driven strictly by ADR increases, with flat occupancy. In 2018, STR projects RevPAR to grow at the same pace even as occupancy is expected to decline slightly (-0.2%). In other words, we do not expect the industry to see a downturn any time soon. Now, this does not mean that RevPAR growth will continue month after month. There is a very real possibility that the prolonged RevPAR run will be interrupted by a combination of calendar shifts and slow ADR growth. But, those are just monthly results that should not foreshadow a prolonged slowdown.

It is also worth mentioning that our forecast was prepared prior to this year’s hurricane season. While the exact impact of the named storms are still not fully known, it is clear that hotels in Texas and Florida have observed a tremendous demand influx from displaced residents, insurance adjustors and FEMA personnel. These people will likely be in hotels for a while, artificially increasing demand and occupancy growth numbers which could impact our total U.S. forecast as well.  

Top 25 Market Performance:
In the top 25 largest hotel markets (excluding Las Vegas), the impact of new supply can already be felt. Through August, supply grew 2.5%, in contrast to the supply growth in all other U.S. markets, which was only 1.5%. Because demand increased only 2.2%, occupancy in the Top 25 Markets so far in 2017 has declined (-0.3%). We expect that this trend will hold, although in the short term, performance could be slightly better because of the hurricane impacts as described above.  

Of course, performance in the Top 25 Markets varies widely. STR reported RevPAR growth of 5.8% in Washington, D.C. compared with a RevPAR decline of 3.4% in Miami. The outperformers can often be explained by one-time events such as the Presidential Inauguration, the Women’s March in Washington or the Great American Eclipse in Nashville. Underperforming markets often have structural difficulties such as very high supply growth rates not being matched by demand growth (examples: Miami and Houston). 

Summary:
Overall, we are quite optimistic that the U.S. hotel industry will continue to grow demand and room rate for the foreseeable future. Supply growth will act as a governor on the growth figures in some markets more than in others.

About Jan D. Freitag:

janMr. Jan D. Freitag is a Senior Vice President for STR (STR, Inc.). STR provides clients from multiple market sectors with premium, global data benchmarking, analytics and marketplace insights. Founded in 1985, STR maintains a presence in 10 countries around the world with a corporate North American headquarters in Hendersonville, Tennessee, and an international headquarters in London, England.

In his role, Mr. Freitag oversees a variety of projects, all charged with the accumulation and interpretation of global lodging data.  He is a sought-after public speaker and is frequently quoted in trade publications and the general news media such as The Wall Street Journal, New York Times, Associated Press, Reuters, Forbes, etc.

Prior to joining STR, Mr. Freitag was the Director of Content Integrity at hotelreports.com in upstate New York and a hospitality consultant with Ernst & Young in Phoenix. He holds a bachelor’s degree, with distinction, from the School of Hotel Administration, Cornell University, and received his Executive MBA, with honors, from Vanderbilt University. Mr. Freitag resides in Nashville, TN.