Weakening supply-demand dynamics have pushed down RevPAR growth across all chain scales.
HENDERSONVILLE, Tennessee—Welcome to the future. The times of continued occupancy declines are here. This is what we have talked about, warned about and fretted about.
Here are five things you need to know about how the U.S. hotel industry performed in August, courtesy of STR, HNN’s parent company.
1. Supply outpaced demand
August demand increased by 1.3%. The calendar was not clean; we lost a Saturday and Sunday (net negative) but gained a Tuesday and Wednesday (net positive), and overall that was probably a wash.
The national supply growth rate jumped to 1.7%—last month it was 1.5%—and occupancy declined by 0.4%. This is the sixth month this year that occupancy declined. Luckily, average-daily-rate growth (2.5%) is still strong enough to make up for the occupancy declines, but the ADR growth in August was the second-lowest this year. It’s definitely a sign of things to come.
That said, revenue-per-available-room growth is positive for the 78th month in a row and our forecast would suggest that this will hold true for this year and most of next year.
2. Trends persist throughout scales
The chain scales mirror the industrywide slowdown. Occupancy growth for all scales was negative and ADR increases were positive. Positive is of course purely a statement of fact, not a qualitative assessment given these dismal numbers:
Yes, independent hotels grew ADR 3.3% (to $129), and since they make up one-third of all rooms this lifted the data. But really only economy hotels had an OK showing when it comes to branded rate growth.
If this is a sign of things to come, it will be a rather disappointing pricing fall and winter. Especially since the top four scales—upper midscale and higher—all showed occupancies of more than 70%. One fascinating note: Upscale supply growth was 6.1% and the segment’s occupancy was still 77.4%, which is slightly lower than last year but not by much. I would assume eventually all these new rooms will hit occupancy. But not yet.
3. Supply hitting top 25
No surprise, the supply growth in the larger markets outpaces the nation and now stands firmly over 2%—2.2% to be exact. Your mileage may vary, and here are the 11 markets in the Top 25 with supply growth above average.
For giggles, I added the absolute occupancy and the RevPAR percent change. Obviously there is a relationship, as can be seen in the top three markets with the highest supply growth, which had RevPAR declines.
Six of these 11 markets showed occupancies of over 80%, so the new supply seems to not have had a huge impact on occupancies—yet. Four of those six actually showed small occupancy declines, but still, running over 80% gave hoteliers some pricing power. Of course, as always, it’s a whole other story for New York City.
4. Slowest growth post-recession
August YTD RevPAR growth was below 3% (+2.9%), the lowest YTD growth since 2009, and we see no sign of a stop to the slowing growth. Occupancy YTD is down 0.2%—virtually flat—and the absolute level of occupancy is still 66.9%, the second highest EVER recorded, behind last year.
And yes, the number of rooms sold is higher than ever at 816.8 million roomnights YTD, which is 1.3% growth. That is actually almost 100 million roomnights more than we sold during the same period in 2011 (719.5 million). So people travel, groups travel, and international guests travel. And developers develop. We now count 1.2 billion nights available, up 1.5%, and that leads us down the path of declining occupancies. Here is how this played out over this cycle:
YTD ADR growth is still 3.1%, which is exactly the long-run average. But obviously the months toward the end of the year always record a bit slower ADR growth than average, so don’t hold your breath for anything spectacular.
5. Group demand lags
Segmentation data for this year continues to underwhelm. Group occupancy is down across the board, declining 1.5% for the nation and 1.7% for upper-upscale hotels. Group has been negative for all room counts except for hotels with over 1000 rooms, which increased by 0.7%.
Transient occupancy is slightly up (+0.7%), and I think we will see the impact of new supply and then price deterioration pretty quickly. Transient ADR growth YTD is only 1.2%, and I do not have high hopes this will get much better given all the headwinds. So, RevPAR growth is still positive (group: +2%, transient +1.8%), but don’t hold your breath for this to continue.
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