NASHVILLE, Tennessee—The top 25 markets in the United States have never sold as many rooms as now, which is an indicator demand is stabilizing, according to Brad Garner, COO of STR, parent company of HotelNewsNow.com.
But although demand is back, U.S. hoteliers still are not charging for it, Garner said Wednesday during a presentation titled “Top-notch performance: Top 25 markets” at the fourth annual Hotel Data Conference.
Year to July, the top 25 markets reported $28.6 billion in room revenue, up 8.6% from the same period last year. That amount accounted for 42.6% of the room revenue in the country, with New York bringing in approximately 15% of revenue within the top 25, Garner said.
In terms of the key performance metrics, the markets reported 69.7% occupancy through July, a 3.2% increase year over year; an average daily rate of $127.28, up 4.7% from last year; and a revenue-per-available-room increase of 8.1% to $88.72.
“There’s an interesting phenomenon going on right now,” Garner said. “If you notice in previous cycles, you have the downturn … (and then the upswing) led by occupancy growth and the ADR growth follows right behind it. That’s not happening in this cycle.”
There is still a lot of ground to make up from the downturn when it comes to rates, Garner said.
The peak ADR for the top 25 was at approximately $135 in September 2008. ADR for the markets is now down to $125.96.
So far, approximately $8 of what was lost during the downturn has been recovered, Garner said. “And that’s not even factoring for inflation.”
What hoteliers need to keep in mind is demand is going to start to taper off, he said. The current level of demand that brought in 8.6% room revenue growth in July is not sustainable in the long term.
“The recovery is over for demand. It’s not going to keep growing at 8%, 9%, 10% no matter what market you’re in,” Garner said.
Because the transient segment never really burnt back, he said, it continues to be sustainable. “The transient/leisure traveler is still out there in the top 25 markets.”
Group demand, however, remains sluggish, particularly on the pricing side. “That speaks to the visibility and booking windows,” Garner said.
Outlook for the top 25
The industry should expect to see the percent change in demand trend downward, Garner said.
Coupling that with a little bump in room supply will cause occupancy for the top 25 to taper.
The top 25 will outperform the rest of the U.S. in terms of supply growth, Garner said. Of the top markets, 50% will show 0% to 5% room supply growth in 2013, while the other half grows in the 5% to10% range.
That said, not all hope is lost for an increase in rates. “ADR will gather momentum and will contribute to RevPAR moving forward,” he said.
It is possible the West Coast, dominated by technology, oil and gas industries, could outperform the East Coast, dominated by financial and insurance companies, in terms of performance, he added.
STR is forecasting the top 25 markets to report a 4.7% increase in ADR for the remainder of 2012 as well as for 2013.