Several markets across the U.S. are experiencing significantly different supply-demand dynamics that are affecting their key performance indicators.
NASHVILLE, Tennessee—It’s a cliché to say the hotel industry is a street-corner business, but the old adage holds some truth in that performance varies greatly from market to market.
During the “Not all markets are created equal” session at the 2017 Hotel Data Conference, Patrick Mayock, senior director of research and development for Hotel News Now’s parent company STR, and Brenna Halliday, VP of strategic insight for Host Hotels & Resorts, took a dive into the data to examine that phenomenon.
1. Supply growth is centered in the top 25 markets
On a percentage basis, the top 25 markets in the U.S. are leading the way in terms of supply growth at 2.4%. For comparison, the 26th through 50th largest markets are seeing 1.7% supply growth and the 51st through 75th largest are seeing 1.6%.
On an individual market basis, several smaller markets are sitting atop the list of largest supply change by percentage, with Syracuse, New York, at 8.3% and Cleveland, Ohio, at 7.8%, but Halliday said those numbers can be a bit misleading.
Percentage growth is “easier because it’s coming off a smaller base,” she said.
Halliday said one of the most interesting markets on the list was Austin, Texas, which came in fourth at 5.9% supply growth.
“It’s a market growing in popularity,” she said. “It’s drafting off Texas being a great place to do business, and we’re seeing supply overshoot a bit. It could take some time for it to absorb.”
2. Some suburban or otherwise overlooked markets are seeing strong demand
Some off-the-beaten-path markets landed on the top 10 for demand growth, led by Scranton/Wilkes-Barre, Pennsylvania, at 11.6% on a running 12-month average.
Halliday called out Colorado Springs, Colorado, as an “interesting small market.” That market ranked eighth at 6.5%.
“It’s drafting off of Denver being successful,” she said. “The economy there is heavily skewed toward government and is now diversifying.”
On an absolute basis, Las Vegas and New York lead the way in roomnights sold.
3. New York has some woes, but occupancy remains strong
The issues among New York’s hotels are well-documented as the city works to absorb significant new supply, but the presenters pointed out the market still enjoys remarkable strength compared to other places around the country.
In terms of absolute values, New York had the highest occupancy of any market in the U.S. at 86.3%, followed by Oahu Island, Hawaii, at 83.7%.
“New York’s occupancy is still high despite supply growth,” Halliday said. “That’s one of the reasons the pipeline there is so big. A lot of projects are still penciling.”
4. Las Vegas has been able to realize rate growth
Colorado Springs led the way in average-daily-rate growth at 9.5% over the previous 12 months, but Las Vegas came in second at 9.3%. Halliday said this is a good sign when considering that market’s history.
“I’m happy to see Las Vegas at the top,” she said. “Historically, it’s been an inexpensive destination, and that has caused some competition. I’m glad to see them pushing rate.”
5. Oil and gas markets taking a hit in RevPAR, but international travel is strong
It’s a tale of two kinds of markets when looking at revenue per available room, the presenters noted. The highest markets in terms of absolute RevPAR seem to be dominated by international markets poised to draw in international visitors and the bottom of the list, both for absolute values and growth numbers, are dominated by oil- and gas-dependent markets.
“International (travel) is really the hero of this cycle,” Halliday said. “There’s strong demand out of (Asia/Pacific), particularly China. There was a bit of a pullback in ’16, but so far in ’17 things have been pretty solid, which is a surprise to the upside in terms of what we might have expected.”
She noted the continued strength of international travel happened in the face of a strong U.S. dollar and some harsh political discourse around immigration, travel and free movement between countries.
6. ‘Non-metro’ markets hold through downturns
While many investors typically favor metro markets, the presenters noted there are some possibly surprising benefits the non-metro markets hold over them, including less volatility in both up and down cycles.
The data noted non-metro markets took less time to recover from each of the last three down cycles, 19 months compared to 56 in 2001 and 49 months compared to 59 in 2008. Ultimately, though, Halliday noted for many the upside in metros might still win out.
“My colleague always says you’d rather have the higher growth in the upturn because you have more up years than downturns,” she said.” You more than offset that volatility with the upside.”