Article Summary:

August, the last month before the U.S. hotel industry will begin to see tough hurricane demand comps from 2017, generated strong overall RevPAR and group demand performance.

Primary Category: Research

Secondary Categories: Americas, Data Dashboard, Infographics, News

HENDERSONVILLE, Tennessee—After July’s results looked like the key performance indicators were on vacation, August hotel performance results went back to work.

1. Demand skyrockets in August
August results roared, headlined by revenue per available room, which grew 3.5%, and has been positive for 102 consecutive months. Room demand of 116 million roomnights was the strongest of any August ever and the third strongest 2018. The industry sold 3.6 million more roomnights than it did in August 2017 (+3.2%). This demand increase in absolute terms is the second highest this year after June’s gain of 4 million. The point is that, somehow, 3.6 million more people were enticed to travel in a single month, pointing at robust GDP growth and Americans generally feeling good about their own income. Occupancy clocked in at 71.3%, the highest level this century. Some of this demand was group-driven, and group RevPAR soared after a tepid July (+0.8%).

Room supply increased 2.1%, but given the demand growth, all was well and occupancy increased 1.2%. After June (+1.7%), this was the second strongest occupancy increase this year. It will be interesting to see if the demand lift provided by hurricanes last year will make the comparison this year so tough that occupancy declines in the coming months.

Pricing continues to be the weak spot of the U.S. hotel industry in 2018. Room rates increased 2.3%, and while positive, it‘s just not enough to promise meaningful profit growth.

2. The power of group business
July’s small group demand growth of 1.1% was probably the result of the shift of the Fourth of July holiday to midweek, which pushed group meetings away. But it seems that indeed groups simply shifted, some of them into August, so demand increased 4.8%, the second strongest this year after April (+10.5%) due to the Easter shift. Compared to last month, the uptick seems to have been a function of displaced demand. The average group demand increase of the last two months is much more in line with the average for the year.

It’s interesting that the August transient demand, despite being strong on the surface, did not move the two months’ average up to the annual average.

Group RevPAR grew at its second strongest pace this year (+5%) and transient RevPAR was OK, but not great.

3. Higher segments stole the show
Since group demand was so healthy, the upper end of the classes did well. But despite the fact that luxury occupancy was 75.3%, ADR only rose 1.9%. Upper-upscale hotels with an even higher occupancy (76.2%) did not raise rates much more (+2.1%). The question remains: if not now, then when?

So, economy properties continue their silent march of healthy ADR increases—tops among all class segments—despite the fact that almost four of 10 rooms are empty each night. Occupancy for economy class properties continues to increase, partially because we keep decreasing the room count (-0.3% supply change).

The other data set that continues to astound me is that upscale room demand increased 5.1% and upper-midscale room demand grew by 4%. Occupancy was slightly positive for both classes because obviously these are the classes where the new supply is concentrated.

4. Pipeline numbers don’t lie
The total number of hotel rooms in construction declined 0.8%, and this is indeed a trend now.

Given that the final planning number also declined 0.7% from last year, it seems that the pipeline count will not substantially rise in the foreseeable future.

The below chart represents one other data point about our pipeline I learned this week, after an equity analyst asked the question. (I had never looked at our data that way.)

This seems to indicate financing is easier for developers affiliated with the major hotel brands.

5. There’s a lot to like about 2018 year-to-date data
So far, so very good. Year-to-date RevPAR growth has been healthy at 3.5% so far this year. ADR growth makes up the brunt of it (+2.6%), and the usual “but it’s only at level of CPI growth” comment applies. Demand has been solid. So far the industry has sold more than 855 million roomnights—more than in the full years prior to 1995. Demand grew 2.9%, and we see no real sign of demand growth weakening—were it not for those pesky hurricane comps that will start to rear their ugly heads. Occupancy of 67.6% is the highest YTD occupancy ever—as usual—and grew a slight 0.8% because supply growth is still muted (+2%).

Since we do not expect supply growth to accelerate, all occupancy changes will be primarily driven by the fluctuations in demand going forward. It will be interesting to see how the hurricanes from last year—which pushed demand up—will factor into our demand math given that we are in hurricane season now and Hurricane Florence is already impacting demand in the Carolinas. What could happen is the markets hit last year—and which subsequently had large demand increases—will see wild negative swings, while the markets that get hit this year—and subsequently have large demand increases—will report large demand increases so that the market level data is literally all over the board, but the U.S. data is actually pretty even.

That reasoning implies multiple hard-hitting events this year, and of course I do not wish that on anyone. But climate change is real and the accumulated cyclone energy expended is only increasing. So far in 2018, we are already almost at the average (87.5) for a “normal” season and it’s only mid-September.

Let’s see what September and October hold.

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.

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Headline: Demand, group numbers lead US hotels in August

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