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US hotels have room to grow rate
August 4 2011

The hotel industry is experiencing the strongest demand rebound ever. Rate, however, is another story.

Highlights
  • The industry is experiencing the strongest demand rebound ever, as 12-month moving average demand growth reached 8% in February 2011.
  • Supply growth is slowing—the 12-month moving average was 1.1% as of June.
  • The new middle classes of China and India are a great source of interest for the hospitality industry, said Scott Rosenberger of Deloitte Consulting.

 

NASHVILLE, Tennessee—The third annual Hotel Data Conference kicked off true to form with a torrent of data and analysis from STR and Deloitte.

Jan Freitag, senior VP of global development for STR, the parent company of HotelNewsNow.com, provided an update on the state of the United States hotel industry.

Beginning with the best news from the numbers, the industry is experiencing the strongest demand rebound ever, as 12-month moving average demand growth reached 8% in February 2011. At the same time, supply growth is slowing—the 12-month moving average was 1.1% as of June.

In the chain-scale analysis, Freitag said the upscale and upper-midscale segments are experiencing the greatest supply growth year to date (2.8% and 4.1%, respectively), which is supported by healthy demand growth of 7.6% in upscale and 10.2% in upper midscale.

Average daily rate continues to be a concern despite occupancy improvements, particularly in the upper end of the market, Freitag noted.

“There needs to be something else happening here, because that is the engine of the industry,” he said. The 12-month moving average for ADR is 2.5% through June 2011.

In the midscale/economy end of the market, 12-month moving average ADR percent change is still not positive. “And that is just sad. … We’re still in a discounting environment.”

Despite four years since the prior ADR peak, the rate recovery is still elusive, Freitag said.

 

Key performance metrics, June 2011 YTD
  Absolute value Percent change
Room supply 874 million 0.8%
Room demand 517 million 5.8%
Occupancy  59.2% 5.0%
ADR  US$100 3.3%
RevPAR $59.00  8.5%
Room revenue US$52 billion 9..4%

Source: STR

 

Location, location
Freitag explored the effect of location in a top 25 coastal market (Boston, New York, Los Angeles, Miami and San Francisco) for key performance metrics. Supply growth in this subset is still hovering at 2.1%.

The 12-month moving average demand growth is more “evenly distributed” when comparing the following three subsets:  the coastal markets; the top 25 markets; and the U.S.-except-for-the-top-25 markets. Growth peaked at 8.8% in the coastal markets, but was similar in the other subsets; it is a departure from demand recovery post-9/11 that was more erratic in these subsets, he said.

As for ADR, it was the hotels outside the top 25 markets that “saved” this metric during the downturn—hotels outside the top 25 saw the smallest ADR decrease of the three subsets analyzed. However the top 25 markets had the highest actual occupancy at the lowest point of the most recent downturn in 2010.

Industry trends
Scott Rosenberger shared findings from Deloitte’s “Hospitality 2015: Tourism, Hospitality and Leisure Trends,” which explores emerging markets, sustainability and social media.

The new middle classes of China and India are a great source of interest for the hospitality industry, said Rosenberger, senior partner, consumer and industrial markets, Deloitte Consulting. “The numbers are just staggering.”

Leisure tourism spending growth in these countries is expected to be on par with or greater than many mature markets through 2015, he said. This is putting a bigger emphasis on midscale and budget hotels.

In China, infrastructure has come a long way, according to Rosenberger. “The emphasis in investments was rail and mass transit rather than fixing pot holes and roads because it just isn’t at the level you’re used to seeing in mature markets. Of course this is important to where you locate a property.”

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