Hotels with more than 1,000 guestrooms, which attract plenty of large meetings and group business, are not as numerous as other property types in the U.S. hotel industry. How will they fare in a downturn?
HENDERSONVILLE, Tennessee—In the tenth year of the U.S. hotel industry upcycle, some key performance indicators show signs of slowing.
Two questions we get asked at STR include “How do we know if a slowdown is occurring?” and “Is there any property type or location that is immune or can cushion the blow of a slowdown?”
(STR is the parent company of Hotel News Now.)
This article looks at the performance of hotels with 1,000-plus rooms, examining how this property type behaved in 2009 and most recently. These “supertanker” hotels are few and far between; there are only 175 of them open in the U.S. today. The accommodation behemoths are intended for large meetings and conventions and are often located next to a convention center to accommodate the attendee room demand. (Note that the Las Vegas Casino Hotels with over 1,000 rooms are not participating in our STAR program and their performance is not reflected in this data set.)
Segmentation RevPAR performance
Since this type of hotel is heavily dependent on group travelers, it is worth examining the revenue-per-available-room performance of these hotels during the last downturn. Not surprisingly, as financial institutions withered and companies canceled, event RevPAR for large hotels declined. The group RevPAR decline was sharp and prolonged.
Today, fears of a global economic slowdown are in the news but the total number of rooms sold in the U.S. continues to grow, albeit at slower pace than in the mid-2010s. RevPAR changes for the segments as reported by the large hotels are erratic—and almost random.
What is noteworthy is that the group RevPAR data in the last few quarters seems to be, more often than not, positive. We know that demand growth in the sample has basically been flat; so in 2019, demand increased 0.4%. The impact of new supply (YTD: +2%) can be felt in the resulting occupancy decrease (-1.6%), but this decline is coming off a very high number. The absolute occupancy for large hotels through July is 76.5%.
Segmentation ADR performance
As occupancies are declining, RevPAR increases have to come from average daily rate and indeed the trajectory of room rate growth paints an encouraging picture.
We interpret this chart to imply that the large group hotels’ room rates that were negotiated a few quarters back were set by revenue managers who knew that their occupancies were quite high in late 2019. This then likely led to a firmer negotiating position.
Zooming in on the most recent past, the monthly ADR growth through July 2019 is a clear sign of this trend.
Other than because of the Easter shift, group ADR has grown over 2.8% each month.
A more troubling sign is the ADR decline in recent months. This may point at different temperament when revenue managers price rooms with a two-day to two-week booking window. It will be important to monitor the group ADR behavior to understand if the existing transient room rate declines are a harbinger of group ADR weakness in the later months of 2019.
Jan Freitag is the SVP of lodging insights at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.