Article Summary:

The U.S. hotel industry concluded 2019 with performance surges in December, powered by additional pricing power and group business. Stronger headwinds are expected in 2020.

Primary Category: Research

Secondary Categories: Americas, Data Dashboard, Infographics, News

HENDERSONVILLE, Tennessee—December results were strong, but the full-year 2019 results point at continued headwinds for 2020.

1. Ending 2019 with a crescendo
December went out with a bang, so to speak. Revenue per available room increased 2.6%, the single strongest monthly RevPAR change in 2019. Average daily rate increased 2%—the strongest growth in 14 months—and occupancy was up little as well (+0.6%).

The calendar was favorable for meeting planners across the U.S., with Hanukkah moving right next to Christmas, leaving the first three weeks completely open for meetings and business trips compared to December 2018. Although we traded a Saturday for Tuesday (historically with a -0.2% RevPAR impact), this likely meant that Monday, 30 December, and Tuesday, 31 December, were used as vacation days, potentially lifting results a bit as well.

RevPAR increased, marking 114 months of growth in 118 months of upcycle. This is the last time I will write about this chart, you get the story. No need to go on and on about it. We are breaking records (until we are not.)

That said, monthly RevPAR data for the past 24 months will deserve much more scrutiny so this chart will remain in the starting lineup:

It’s interesting to see that the annualized RevPAR growth line seems to have bottomed out.

2. Segmentation data
Wow! Group RevPAR increased 11% in December. Happy New Year, indeed. Looks like a lot of corporations made their folks go to that final trade conference to seal those deals before the eggnog stupor set in. Very strong occupancy growth of 6.6% was aided by very healthy 4.2% group ADR growth to get us to a double-digit RevPAR increase.

When was the last time group RevPAR increased that much? Interesting question, dear reader—it was in April 2018, and back then only because of our friend, the Easter shift. In other words, double-digit RevPAR growth for segments in this part of the cycle will not come organically but only happen because of calendar shifts.

Transient results were also healthy, and the number that should catch your eye is the 2.6% ADR increase. This is the strongest transient rate growth we recorded in 2019. Again, likely not a sign of things to come but rather a function of last-minute travelers trying to get to those meetings in compressed markets and hence having to pay more. Transient’s 4% RevPAR growth was the strongest in 18 months.

RevPAR changes by room count show that big is beautiful and that the RevPAR increases were most pronounced for the very largest hotels, with more than 1,000 rooms.

3. Pipeline data
Another month, another really slow growth rate for rooms in construction. The number of rooms being built dropped from 206,000 last month to just 200,000 in December. That’s only a 4.4% increase from December 2018. The total pipeline for hotels under contract has now grown 2% year over year—call that flat. This of course is an indicator of things to come, and I guess that means that there is not that much to come—limited service in top 25 markets being the exception.

A banking client asked for more detail about the flag affiliations with the Big 6, so I added the following slide to show the amazing change in the makeup of the total pipeline. The portion of rooms associated with the larger parent companies has increased from 59% in December 2010 to 83% in December 2019. It’s a clear sign that developers are voting with their wallet and prefer what they know.

A question we get frequently is about the time it takes for projects to open. Does the shortage of construction workers manifest itself in our data? Our research analyst TingTing Duan kindly looked at this; the chart below shows the results, in year-over-year and 10-year-average terms.

Looks like except for upper-upscale properties the construction duration has increased slightly between 2018 and 2019, which matches the commentary we heard from Marriott International and Hilton during Q3 earnings calls. I would assume that this will continue to be an issue especially at the lower end of the chain scale spectrum.

4. Convention hotel construction
Two other data sets are noteworthy now that 2019 has ended.

First, the total number of new square feet of meeting space opened in 2019 stands at roughly half the amount of the prior peak in 2008. This is just the materialization of the select-service room pipeline tidal wave that has swept the industry.

Secondly, the number of properties that are completely taken out of commission continues to fall. Last year, only 143 hotels closed completely, compared to 426 in 2009.

It seems owners very rarely send rooms to the great hotel in the sky and rather refurbish, rebrand or reposition than close a property outright.

5. Comments about 2019
Full-year results were uninspiring and will likely not be much better in 2020.

RevPAR growth of 0.9% is uninspiring, and the topics we harped on about last year will still hold this year:

  • new supply growth in the top 25 markets;
  • new select-service supply;
  • increases in wages not matched by top-line revenue increases;
  • revenues outside the room as a possible last resort of revenue generation; and
  • resort fees.

To support the fact that the industry is indeed facing headwinds, the below chart shows that in 2019 the percentage of submarkets that recorded RevPAR declines increased and the percentage of submarkets that showed increases declined.

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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