U.S. Hotel Industry Update: Year-end 2017

By Chris Klauda, Director, Destination Research, STR

In 2017, the U.S. hotel industry had more rooms available than ever, sold more rooms than ever, generated more room revenue than ever and recorded the highest occupancy, ADR and RevPAR levels ever! In fact, RevPAR has grown year over year for 94 consecutive months—almost eight years in a row.

STR also reported record-breaking years in 2015 and in 2016. So will 2017 be the end of the record-breaking performance or can the industry maintain its momentum and achieve even higher levels in the coming years? STR and Tourism Economics’ forecast for 2018 and 2019 suggests that performance growth will continue for at least the next two years. ADR will be the driver of future growth given that U.S. occupancy, at an all- time high of 65.9% at year-end 2017, is forecasted to grow minimally. Basically all RevPAR growth will be the result of ADR growth for 2018 and 2019.

However, the hotel industry is a street corner business, and what happens nationally is not always what happens in your town or city.

Let’s start with the smaller markets—markets outside the top 25 largest. In 2017, smaller markets reported lower occupancy (62.3%), ADR ($112) and RevPAR ($70) compared with the Top 25 Markets. However, 2017 percentage increases for occupancy, ADR and RevPAR were greater outside of those larger markets. Part of the reason for this is that smaller markets have more room for occupancy growth, while the larger markets are closer to being sold out.

Wait, larger markets are sold out? Almost.  Supply increased 2.4% in 2017, but demand increased 3%. Thus, full-year occupancy in the Top 25 Markets reached 73.7%, an all-time record.  That said, the larger markets are the darling of developers—45% of all rooms In Construction are located in the top markets.

Across the top markets, performance varied quite a bit. Nashville reported the highest ADR growth, helped by those popular bachelorette parties and Nashville’s current “It City” status. Orlando continued to post record occupancy and ADR growth as the nation’s top leisure destination. Nashville, Washington D.C. and Tampa’s performance could be partially explained by one-time events both planned (Inauguration, Women’s March) and natural (Solar Eclipse, Hurricane Irma).

Underperforming markets often have structural difficulties such as very high supply growth and the impact of events that took place the previous year (ex. Super Bowl in San Francisco and the Democratic National Convention in Philadelphia) making comparisons with 2016 challenging.  

Here are the top and bottom ADR gainers for the year in the Top 25 Markets:

As a final note as we begin 2018, keep in mind both the impact of one-time events and calendar shifts, because they do make a difference. Super Bowl LII, recently hosted in Minneapolis, will lead to dramatic increases for that market this month compared with February 2017. The hurricanes and fires that devastated Texas, Florida and California in Q4 2017 will have a major impact on hotel performance indicators for those states in Q4 2018. Easter shifting from April to March impacts leisure travel and group travel in opposite directions. Leisure travel is strong in the month when Easter occurs, while group travel is weaker. Halloween’s mid-week appearance will have a negative impact on the entire week for business and group travelers who prefer to stay home with their ghosts and princesses.

Summary:

2017 was another year for the record books for hotel performance. The “non-Top 25 Markets” have room for growth in occupancy and rate. The Top 25 Markets posted varied performances with winners and losers. 2018 is forecasted to be a good year for the industry with continued growth at a slower rate. Just keep an eye on that calendar.

About Chris Klauda:

Chris Klauda leads the research and analytic efforts for STR’s destination division which includes destination hotel performance, compression analysis, special event studies and group segmentation. She is instrumental in producing STR’s biennial study of meeting planners titled Destination MAP (Meeting Assessment Planning). The 2017 issue was released in July, 2017. Chris was previously a VP with DK Shifflet where she managed research projects for all hotel clients, including Best Western, Choice Hotels, and Marriott. Chris is often called upon to present industry insights at travel industry conferences and as a guest lecturer at various universities. Chris graduated from the University of Minnesota’s Carlson School of Business.

Additional STR background:

STR is the source for premium data benchmarking, analytics and marketplace insights. Hotel owners and operators, developers, CVBs and destination marketing organizations, investors, consultants, bankers, suppliers, vendors and analysts involved in the hotel industry benefit from STR’s data insight into the industry. Founded in 1985, STR’s presence has expanded to 15 countries with corporate North American headquarters in Hendersonville, Tennessee; international headquarters in London, England and Asia Pacific headquarters in Singapore.