BOULDER, Colorado—The results are getting even more interesting in the July edition of the RevPAR Recovery Race series, where New Orleans continued its winning streak as Top 26 market leader—a title it’s held since April 2010. However, this time we’ll take a deeper look at the numbers and examine the past four months of the market’s revenue per available room growth to see whether occupancy growth or rate growth is primarily driving the leader’s recovery.
In the overall RevPAR Recovery Race through July 2010, New Orleans continues to occupy the top spot with only 6.2% RevPAR growth needed to return to its peak RevPAR levels. The following chart shows July’s results for the trailing 12 month (TTM) moving average RevPAR, as well as how each market’s position has changed in terms of Top 26 market ranking since April.
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Utilizing the TTM time period helps normalize the data and substantiates a 12-month sustainable growth rather than a unique monthly/seasonal irregularity.
While New Orleans’ position at the top of the previous chart is commendable, it’s important to note the market, unlike all other Top 26 Markets, is benchmarked off of a lower RevPAR peak. This lower benchmark is primarily attributable to Hurricane Katrina, which five years ago stymied the amplitude of the potential growth of the market during the previous cycle’s peak. We point this out not to take anything away from its achievements thus far, but to better understand the market’s seemingly quick recovery.
That said, we looked deeper into the numbers this month to examine short-term trends occurring since April 2010 when we started recording the recovery results. Consequently, the following table shows the TTM RevPAR growth since April of 2010 sorted in descending order.
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As seen in the previous table, New York is the RevPAR growth leader, increasing TTM RevPAR since April of 2010 by 5% from US$170.04 to US$178.57. Other short-term growth leaders include Denver, New Orleans and Chicago, all of which experienced more than 4% TTM RevPAR growth since April. Seeing New Orleans once again in the Top 5 for short-term RevPAR growth highlights that even though its peak RevPAR benchmark might be lower relative to other major U.S. markets, New Orleans still is experiencing faster-paced growth than most of those markets. Conversely, a number of markets experienced less than 1% RevPAR growth over this same period, such as Riverside-San Bernardino, Orlando and Houston, which represent the bottom three cities in terms of short-term RevPAR growth. The national average since April is 2.1%.
Notable from this analysis are the discrepancies between the first chart illustrating July data alone versus the second chart detailing April through July data. For example, New York is at the back of the pack (ranked 22nd) in terms of the overall RevPAR recovery but is ranked in first place in terms of short-term RevPAR growth. Denver is in the middle of the pack for the overall recovery (ranked 11th), yet it is second in terms of short-term RevPAR recovery.
The immediate explanation for these discrepancies is found in the underlying RevPAR decline that each market faced during the recession. The farther the market fell, the more room it has to climb back before supply, daily demand and seasonal travel patterns reach equilibrium. But we also wanted to find out what the short-term leading markets were doing that might help all the markets improve, so we examined what component of RevPAR is creating the most rapid short-term growth.
The following graph illustrates the difference between the Top 5 versus the Bottom 5 markets in terms of short-term growth (TTM growth between April 2010 and July 2010). The blue bars represent occupancy growth and the orange bars represent rate growth since April of 2010.
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The above graph decisively indicates that markets experiencing the best RevPAR growth since April of 2010 have done so with a combination of occupancy AND rate growth. The bottom markets that are struggling to jumpstart their short-term recovery are all (with the slight exception of Miami) continuing to experience below-average occupancy growth AND continuing to experience rate decline, an unforgiving combination. In fact, ALL of the markets with above-average RevPAR growth also have positive rate growth. The only exception to that rule is Detroit. Since April, Detroit has experienced 1.1% TTM rate decline that resulted in the market’s lowest ADR in the past 18 months (US$74.93). However, Detroit is experiencing above- average occupancy growth (3.91%) for that same time frame. Detroit’s 3.9% TTM occupancy growth represents the highest occupancy growth percentage of the Top 26 Markets since April 2010. Thus, with the exception of Detroit, this chart indicates that in order for markets to start experiencing above average RevPAR growth, they must achieve it through a combination of rate and occupancy growth.
While that might be intuitive to some at this point in the recovery, we found an even more insightful trend. We noticed that with the exception of New York City, the markets leading the recovery have experienced higher occupancy growth than rate growth. We then evaluated what occupancy growth threshold must be reached before a market will push its rate growth. With the exception of Nashville (floods), Detroit (auto industry) and Atlanta (potentially new supply), all markets that have successfully been able to grow rate in the TTM since April of 2010 also have achieved slightly greater than 2% TTM occupancy growth. If this theory holds true and the threshold to push rates starts with a TTM occupancy growth of 2%, then there are some markets knocking on the door of imminent rate increases, such as Philadelphia, St. Louis, San Diego and Seattle. Each of these markets is within 0.5% of cracking the 2% occupancy barrier.
We will continue to track these Top 26 Markets and investigate new ways of monitoring their relative growth. In the meantime, contact me at orly@stranalytics.com if you are interested in further information about these markets or specific market forecasts. Please feel free to post your predictions for the first market to make a full recovery and when. Stay tuned for updates on your markets.
