Article Summary:

The U.S. hotel industry lost RevPAR for the second time in 2019 as the lower-tier class segments and markets outside the top 25 struggled.

Primary Category: Research

Secondary Categories: Americas, Data Dashboard, Infographics, News

HENDERSONVILLE, Tennessee—In September, U.S. hotels recorded the second monthly revenue-per-available-room decline of 2019.

I was wrong. There. I said it. I had been promoting the calendar shift of Rosh Hashanah as a positive for the month and, well, it did not come to pass. Atone, I must. It’s true that RevPAR in the week with the positive calendar comp increased 7.5%, but the remainder of the month was pretty uninspiring, and so RevPAR declined 0.3%. Average daily rate increased 0.6%, but that was not enough to overcome the 0.9% occupancy decline.

ADR growth has now been below 1% for five of the nine months this year. The count keeps changing because we keep revising the prior months’ data up. Occupancy has now declined four of nine months.

The RevPAR upcycle is now in its 115th month, and 112 of those months had positive RevPAR change. So, I wonder if it’s time to retire the term “upcycle” if RevPAR is declining, as it did in September. The long-run monthly RevPAR growth chart now looks like this, but the header needs a qualifier (“three small interruptions”) and so it may be time to come up with a better descriptor.

Class data
The slight RevPAR decline on the national level implies that there were likely some pockets of positive results, and indeed the upper end of the market did a teeny tiny bit better than the remainder of the classes. This is the result of the group numbers coming in quite positive as we discuss below.

A couple of data points stand out. Luxury hotels continue to do well, upper-upscale hotels continue to see some pricing power (when group demand is good). Upscale and upper-midscale hotels are seeing the impact of almost 4% supply increases in the occupancy results. It’s interesting then that the upscale ADR has not moved, but I would really see that as a positive outlier and not the norm going forward. Occupancy declines will be followed by ADR declines, I would submit.

Economy occupancy took a real hit, and that is noteworthy since supply for that class is still down 0.2%. Demand declined 1.3%, the steepest decline of all classes. So, when people look for canaries in the coalmine, is the ongoing deterioration of economy key performances indicators that sign? Is the leisure customer tightening the purse strings as the U.S. economy slows?

Let’s watch this space.

Pipeline data
The number of rooms in construction (I/C) declined very slightly to about 204,000, but since last year’s number declined as well, the growth percentage dropped below 10% again, now standing at 8.2%.

“Trend or blip?” is the age old question when one data point runs counter to prevailing wisdom, so it will be interesting to see what the remainder for the year holds. Until the data tells us otherwise, my assumptions remains that rooms in construction will grow around 10% year over year for the near future.

The other interesting ratio that developers are following is the impact that these rooms in the pipeline will have on the existing room count—in other words, if all rooms in construction opened today, what would the supply growth rate be? This new chart shows that the growth rate is—as expected—fairly manageable and has not moved much since the beginning of 2018. Please note that the y-axis only shows data between 3% and 4%, so the swings here are more pronounced graphically than they really are.

In other words, assuming that these rooms are under construction for, say, two years, the annual growth rate is below 2% (3.8% divided by 2) and falls fairly in the spectrum of our national supply growth rate assumption going forward.

Top 25 markets
Unlike in the last few months, the larger markets actually did better than the nation, if you want to call 0% RevPAR change “better.” Demand increased 2.2%, and I would again point to these markets as the beneficiary of more group travel and hence somewhat stronger performance. But of course the 2.7% supply increase forced occupancy into decline (-0.4%) as expected. ADR increased by just 0.4%.

As you can see in the chart, this is actually the first month in a year that RevPAR change in the top 25 markets outperformed the total U.S.

All other markets reported occupancy declines of 1.1%, driving down their RevPAR. But overall September was still a healthy month for those “other” markets—operators were selling over six out of 10 rooms.

Comments about Q3 2019
What a sad showing. Third-quarter U.S. RevPAR grew 0.7%, as occupancy declined 0.1% and ADR barely moved up 0.8%.

The class performance is varied and a few things stand out. Luxury continued to do better than average, pointing at continued healthy demand growth. Upper-upscale hotels had tiny bit pf pricing power. Upper midscale hotels overcame supply increases of 3.6% to still report growth in occupancy. As I discussed above, the economy number is probably worrisome since the supply continues to decline (-0.2%), but in this quarter demand decreased (-0.5%) as well, the only class with Q3 demand decline.

And the regular quarterly update of “ADR less CPI” continues to paint a grim picture for profit growth. Real ADR in Q3 was down 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.

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