NASHVILLE, Tennessee—Chain-scale segments follow similar patterns through each downturn and recovery, though they seem to rebounding at a quicker pace during the most recent upswing, according to STR’s Steve Hood.
Helping fuel recovery across the segments is the negative or flat supply growth year-to-date July, with the exception of the upper-upscale and upper-midscale segments, Hood, senior VP of research at STR, said during a data presentation titled “Chain reaction: Chain Scale Segment Performance” at the Hotel Data Conference earlier this month. STR is the parent company of HotelNewsNow.com.
“All those flat or negative (supply) numbers is good news,” he said.
The upper-midscale segment reported the largest demand increase through the first seven months of the year, followed by the upscale, luxury and upper-upscale segments. The midscale segment is the only segment to see demand decrease July year to date.
Click to enlarge.
The upper-tier segments also reported stronger occupancy numbers, with the luxury, upper-upscale and upscale segments having surpassed prior peaks from 2007. The midscale and economy segments still are approximately 3% below 2007 peak numbers.
Actual average daily rate, on the other hand, has rebounded slowly for most scales, with only the upper-midscale segment on par with 2008’s prior peak. The luxury segment is still $25 below prior peaks; upper-upscale is off $9; upscale is off $8; midscale is off $5; and economy is off $3.
Actual revenue per available room parallels actual ADR with a sluggish pace of recovery. The luxury, upper-upscale and upscale segments are 4% to 6% below prior peaks. The upper midscale segment is again on par. And the midscale and economy segments are capturing RevPAR 10% less than prior peaks.
Historical performance
The luxury and upscale segment have led the hotel industry in terms of room supply growth during much of the past decade, although upper-midscale development has picked up more rapidly during the past year, Hood said.
The shift follows a jump in demand for upper-midscale hotels—an increase of approximately 10% on a 12-month moving average, according to STR data.
Demand percent change for luxury and upscale hotels have been consistently above the U.S. average, whereas demand for economy and midscale hotels has been consistently below.
During the most recent cycle, occupancy percent change generally has been consistent across all segments, Hood added.
Click to enlarge.
ADR percent change in recent years, however, has been prone to more variance. During 2009, for example, the luxury segment recorded a much steeper drop in rate compared to the other segments. However, luxury hotels also recorded a much sharper increase during 2011. RevPAR growth followed suit.
Click to enlarge.
Scales outside the box
Hood also highlighted several different ways to slice and dice chain-scale performance, such as by market type, day of week and recovery timing.
Parsing through performance in the luxury segment, for instance, Hood said non-metro markets were the “most affected” after 9/11. However, after the Lehman Brothers collapse, metro and non-metro markets alike where equally affected.
Luxury properties in New York, Boston, Chicago and San Francisco were impacted the most during the most recent downturn, Hood said. And during the upturn, luxury hotels in San Francisco; Orlando, Florida; Miami; Boston; and Washington, D.C. recovered most quickly.
In terms of business mix generally across the luxury, upper-upscale and upscale chain scales, the group segment felt the sharpest pains in terms of occupancy during the downturn.
“Transient occupancy has totally rebounded,” Hood said, adding transient occupancy surpassed the prior peak for all scales, with upscale being the strongest.
Looking at weekday and weekend numbers, weekday occupancy was affected the most in all segments during the past two downturns. Weekends are generally less affected when it comes to economic cycles, Hood said.
The upper-midscale segment has posted the strongest rebound in terms of sellout nights—or nights with greater than 90% occupancy, Hood said. The segment has the “most sellouts than any (segment) and luxury and upper upscale are at the bottom of the pack,” he added.
