Executives from STR, CBRE Hotels, Tourism Economics and TravelClick shared the latest data on what’s driving U.S. hotel industry performance trends at the recent Hunter Hotel Conference.
ATLANTA—As the U.S. hotel industry marks eight years of continued monthly revenue per available room growth, analysts are digging deeper into performance data to explain the trends behind these numbers and what hoteliers might expect moving forward.
Analysts shared data at last week’s Hunter Hotel Conference that underscores some of the big-picture trends behind ever-growing demand, the group vs. transient outlook and how economic policy factors in.
1. Demand continues to grow
“The demand number has surprised everyone,” said Jan Freitag, SVP of lodging insights for HNN’s parent company, STR. “It gives us occupancy growth to a record level of 66%. We’re selling two out of three rooms every night.”
Freitag pointed out that demand related to Hurricane Harvey and Hurricane Irma in 2017 played a big role in overall U.S. demand numbers, and added that weather events like these might be part of a new normal, “and we as an industry need to be ready for this.”
Beyond that, Tourism Economics President Adam Sacks predicted a few additional factors contributing new demand on the U.S. hotel industry: international inbound travelers, group business, vacation-starved Americans and people aged 65 years or older spending more on travel.
“Despite some of the data you have seen, international travel to the U.S. was up last year,” Sacks said. “The dollar has eased, supporting further inbound gains. There are emerging middle class and new traveling households.”
He said underlying economic factors support continued demand growth from all groups.
“People are booking more hotel rooms per capita than ever before,” he said. “We expect it to continue to go up because of wealth and income increases. … People are taking fewer full-week trips and more partial-week trips, but both have begun to lift up. We see this as an important inflection point and opportunity for increased demand.”
2. Supply remains a slightly nagging worry
“History tells us there are five things that have brought an end to lodging cycles, and we think today the only (ones) worth thinking about a little are overbuilding and the asset price bubble,” said Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research.
He shared data showing that of the markets the company tracks, 42 of them have average supply growth forecast to be greater than 2% this year.
“The more rooms you add, the more downward pressure we’re seeing on … the ability to raise rate,” he said. “You can see that the more rooms added, the less pricing power and less of an increase in those markets. As we project forward to this year, that phenomenon will still be present.”
3. Rate is the big question
With record-setting demand still pouring in and RevPAR still forecasted to continue to grow, the analysts agreed growth in RevPAR would have to come from rate.
“We’re expecting more RevPAR growth this year and next. It’s not a surprise because we’re running on such full hotels, so most of that RevPAR growth has to come from room rate growth,” Freitag said. “We’re seeing a slight acceleration in ADR growth rate. It’s up to you to make that happen.”
Sacks pointed out consumers are upbeat, reflected by consumer confidence and consumer sentiment “both near record highs,” he said. Relatively low unemployment numbers and strong job-finding numbers buoy that sentiment, which is further supported by data showing that more people like to travel.
Sara Duggan, regional VP of global business intelligence for TravelClick, shared data showing how average daily rate breaks out by channel.
“GDS is the highest ADR channel in the fourth quarter,” she said, adding that the assumption is that corporate business is driving that. “Also, the (online travel agency) channel is pushing a higher ADR than brand.com.”
That made her pause, she said, and dig into when OTA ADR began to outpace brand.com ADR, and she said that inflection point is happening this year.
Since TravelClick looks at business already booked for the future, she said the company’s data should inspire confidence in 2018 for hoteliers.
“We have more RevPAR on groups this year than we did last year, and most of that is driven by occupancy and most is coming from the combination of business and leisure,” she said. “There’s a lot of reason to go back to hotels and push them to make sure they’re making the right pricing decisions.”
4. Labor and wage issues are reflected in industry performance
Sacks said while consumer confidence and sentiment are up, overall low U.S. wages “are a particular point of concern.”
That affects the traveling consumer and also hotel employees, he said.
“We do think wages will catch up with the labor market,” he added.
The impact of wage growth on overall growth is significant though, he said, and causes concern.
“Over the past few years, consumer spending has been growing faster than income, which means savings are going down,” he said. “Wages have to increase for growth to materialize.”
That doesn’t have a huge impact on hoteliers right now, Sacks said, since most hotel demand comes from the top 40% of income earners, who aren’t necessarily dipping into savings, but it does put an overall damper on economic growth.
Most of the analysts also cited labor costs as big concerns for hoteliers, and wages are a part of that, which help keep employees happy and productive.