Article Summary:

The U.S. hotel industry’s May 2019 results were stronger than expected, and summer travel demand will hopefully be a boost for the industry.

Primary Category: Research

Secondary Categories: Americas, Data Dashboard, Infographics, News

HENDERSONVILLE, Tennessee—May results continued a string of uninspiring results, but summer travel will hopefully a bright spot for the industry.

1. Stronger-than-expected occupancy and ADR growth
Sometimes you get surprised. Toronto wins the NBA. St. Louis wins the NHL. Tampa Bay might play baseball in Montreal. And May RevPAR grew 2.5%, after two months of sub-2% growth. Occupancy grew 0.9%, which, yes, looks small, but it was the strongest growth since August 2018. And ADR growth was 1.6%, a low increase but at least not zero-point-something as we had previously reported.

And really, what is noteworthy (maybe the word “surprise” is a bit strong) is that occupancy increased almost a full percent. All of this driven by a demand increase of 2.9%, which I think maybe is a bit stronger than we had anticipated. So, nine years into the up-cycle, the industry still finds many more new travelers and occupancies continue to rise.

Put in absolute terms, the industry was able to sell an additional 3.2 million roomnights more than May 2018. All months in 2019 we have seen demand increases over last year, but May stood out:

So, the table shows that monthly room demand increases somewhere between 2 million and 3 million rooms seems average, but in May we sold more than that. Oh, but it’s fair to point out that June 2018 was a very positive outlier, so it will be interesting to see how the consecutive demand increase will shape up this June.

2. STR Forecast
Our CEO, Amanda Hite, presented the latest STR forecast at the NYU International Hospitality Industry Investment Conference in early June. We decreased our RevPAR forecast from 2.3% to 2%, which, given the poor Q1 data, was not really a surprise to anyone. (STR is the parent company of Hotel News Now.)

We expect occupancy to be flat or slightly up from last year and ADR growth to be muted at just below 2%, so RevPAR is expected to grow 2%. RevPAR YTD is only up 1.6%, so we need a bit more rate growth in the second half of 2019.

The chain-scale breakout of the RevPAR growth data is not a surprise; the new supply hits the occupancies of most scales except for economy.

ADR growth is expected to be highest on the high end, likely driven by corporate demand and low unemployment rate for white-collar workers that drive leisure demand.

3. Pipeline data
Last month I put on my best dad-voice to sound concerned about the increase in rooms in construction, and the number stayed high and grew 8.9%. That is a smidge below the 9.9% increase from April, but the reality we have to face is that the number of hotel rooms in construction will likely surpass our old record of 211,000 rooms one of these days. Well, one of these months. OK, one of these quarters.

Good news for the operators is that the number of rooms in construction is not growing rapidly, but at a somewhat measured pace, so markets will not get suddenly flooded with new supply. The exception, of course, are limited-service hotels in top 25 U.S. markets; those just keep on proliferating.

As most of you know by now, Hilton and Marriott International make up just under 60% of the total number of hotel rooms in construction. I added a new slide, just for shock value, that shows the impact of the “Big 6” on the total active pipeline.

I mean, we all knew intuitively that “The Future is Branded” to coin a phrase, but seeing it like this is indeed a bit jarring. Keep in mind that currently these parent companies control “only” 56% of existing rooms in the U.S. So developers are voting with their wallets and they are voting “Big 6 brand.” And that will shape the face of the industry when it comes to new supply for decades to come.

4. Top 25 markets
With an uninterrupted calendar for group meetings, most of the cities that showed healthy RevPAR growth rates also likely benefited from good group traffic. The largest RevPAR gains were recorded in markets with one or two citywide events, which then drove up occupancy and rates.

So, even though the RevPAR results for the top 10 markets were quite substantive, overall the larger markets actually lagged “All Other Markets” in all three KPI growth categories.

Now, of course, judging growth might not be quite fair since the occupancy in the larger markets is 10 points (!) higher and the ADR is almost $50 higher than for the rest of the country. But, alas, in this business no one gets paid for delivering dollars but only for creating growth, and that makes life in the larger markets much, much harder. I mean, really—how do you grow 75.6% occupancy? Those markets are already basically full.

5. Comments about YTD May 2019
We are already five months into 2019, and the ADR growth story continue to underwhelm. Year-to-date ADR is up 1.2%, driving RevPAR up 1.6%—both results are pretty small.

Yes, 2.5% demand growth is good and the saving grace in this environment where prices are pretty stagnant. And keep in mind that the U.S., ADR data is pushed upward by San Francisco; excluding this one market, ADR growth is exactly 1%.

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.

3 Comments

  • Jay Troutman June 28, 2019 10:34 AM Reply

    I always learn from, and enjoy your presentations. Thoughtful and informative. Thanks Jan.

  • Lou Plasencia July 2, 2019 7:40 AM Reply

    Jan, is that a new smoking jacket you're wearing in the performance data graphic?
    Seriously, great stuff as usual. Thanks for sharing.

  • Jan D. Freitag July 2, 2019 1:56 PM Reply

    Thanks for your kind words.
    And yes, whenever I present in museums I apparently dress up.

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