BOULDER, Colorado—The RevPAR recovery race article series continues with September and third-quarter results. Overall—and as might be anticipated by loyal readers—New Orleans continues to lead the race with only 3.3% RevPAR growth needed to match its September 2008 RevPAR peak.
(Incidentally, as New Orleans nears the finish line, this statistic indicates that since the initial downturn, the fastest rebound to peak performance of any market requires at least a two-year timeframe—a significant period of time that reminds us of discounting’s cautionary tale for the next recessionary cycle.)
In the August edition of the series we examined the short-term, trailing-12-month (TTM) occupancy growth threshold that certain markets appeared to have hit prior to sustainable rate growth; that TTM occupancy threshold was 2%. We pick up the series this month with an examination of the fundamental figures behind occupancy growth: supply and demand. Later in the article we analyze the various trends, or lack thereof, that have arisen in supply and demand patterns across the U.S. Top 26 Markets since this time last year.
The following chart shows the TTM moving average RevPAR through the third quarter of 2010 as well as how each market’s relative position has changed in terms of Top 26 ranking since the start of the race in April 2010. As previously mentioned, New Orleans continues to occupy the top spot with only 3.3% RevPAR growth needed to return to respective peak RevPAR levels.
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Note: Using the TTM time period helps normalize the data and substantiates a 12-month sustainable growth rather than a unique monthly/seasonal irregularity.
In terms of competitive positioning, Denver has experienced the most significant improvement relative to the other markets, climbing six positions from 14th at the start of the second quarter to eighth at the end of the third quarter. Several reasons for Denver’s strong performance are highlighted in Patrick Mayock’s article, “Denver hotel market on fast track to recovery.”
That incremental improvement reflects a 7.4% growth in Denver’s TTM RevPAR. Other leaders with TTM RevPAR growth of more than 7% since April are: Boston, New York and New Orleans. Each of these three markets has improved its position in not only the overall race since April but for the entire third quarter. The average growth for that same time period among these Top 26 markets is 3.7%.
In fact, the markets with the highest growth rates in the third quarter (as shown in the following chart sorted in descending order based on Q3 growth) also are the markets simultaneously climbing in the overall standings, and vice versa. For example Miami, which started the race ranked seventh, has gained only 2.0% in TTM RevPAR and subsequently has fallen to 10th overall. Furthermore, the median market of Minneapolis-St Paul displays a very noticeable shift in the direction of the positioning arrows. The markets improving in the overall results (the green arrows) are all above the median in Q3 growth while those declining in the ranks are all below the median market.
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Supply and demand
As most of the STR data for 2010 suggests, hotel demand is driving the current, and thus demand growth serves a leading indicator of a market’s recovery. Consequently, we wanted to determine if there are any underlying relationships among these markets between supply and demand that could help explain why some markets are accelerating and others remain sluggish.
The following chart categorizes our findings and displays general trends across the major key performance indicators in terms of September 2010 TTM growth. As the legend illustrates, the green up arrows in each respective column indicate above-average performance while the orange down arrows indicate below-average performance. The applicable averages are highlighted in the first row of the chart. The columns are sorted in the left to right orientation, supply being the primary sort, demand secondary, then occupancy, etc., and finally, if necessary, alphabetical order.
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During 2009 and early 2010, concerns about supply growth took a back seat to major depressions regarding falling demand and, more recently, declining rates. But as demand recovers and begins to stabilize and ADR declines level off and begin to rise, the focus on the supply side of the economic equation again will move to the forefront. This market reality is highlighted in the chart above, wherein we can see that the 12 markets still experiencing above-average increases in supply either are remaining stable or are declining in the overall RevPAR recovery race, with the single exception of New York.
However, among the 12 markets experiencing above-average increases in demand, only 75% are improving their position in the RevPAR recovery race. This indicates that limited supply growth, perhaps even more than demand growth, is the leading indicator of RevPAR recovery.
We invite you to analyze the chart for patterns and trends that you see as well. Keep following your market, and we’ll continue to keep analyzing new ways of slicing and dicing this data to show that even though the overall RevPAR recovery is significant, there are many ways to monitor the progress of these U.S. Markets. In the meantime, contact me at orly@stranalytics.com if you are interested in further information about these markets or specific market forecasts.
