U.S. hotel RevPAR increased 1.5% in January, which could indicate the rest of 2019 will yield more of the same slowing growth.
HENDERSONVILLE, Tennessee—January is traditionally a slow month in the industry and this January was no different.
1. Signs of a slowdown
January revenue per available room increased 1.5%, the lowest January RevPAR growth this up-cycle (since 2011) and the lowest RevPAR growth—if you exclude the hurricane comp of September 2018—since July 2017. This should not come as a surprise to regular readers, but things are indeed slowing down, meaning that the industry is still growing but at a slower rate of growth. Moving sort of like molasses.
ADR growth of 0.8% was the lowest monthly growth rate this up-cycle (since May 2010), which is a sad showing. Luckily, the inflation growth rate for the U.S. came in around 0.2%, so we are still in a low-inflation environment. However—as we’ve discussed in the last few months—profitability will be hard to come by given this ADR growth pace.
Occupancy increased 0.7%, which is the new normal, and we expect that number to oscillate but trend downward over the year. Our occupancy forecast stands at 0% for 2019, so I guess we are on track for that. Here is the pace for the last few months:
Let me update this table I showed last month, just for shock value. This January saw the highest absolute occupancy ever for a January, but a lower ADR growth than in any January this up-cycle:
Vail Ross presented our new STR forecast at the Americas Lodging Investment Summit and the outlook is, not surprisingly, muted. We expect more growth on the supply side (+1.9%) and the demand side (+1.9%) which will make the absolute values the highest ever. This then leads to 0% occupancy change and hence, if this comes true, our national occupancy will again be the highest ever, or tied to be highest with 2018. We predict right now that ADR growth will be 2.3%. ADR growth—or lack thereof—then drives 2.3% RevPAR growth.
An equity analyst wanted to bet me that we are too low, but ultimately he got cold feet so we did not bet. But I stand by the conviction that if 2018 was not the year for ADR growth (and arguably it was not) then 2019 will definitely not be the year that ADR growth suddenly accelerates.
3. Segmentation data
January was a pretty healthy month for group demand (+2.3%) and sort of OK for transient demand (+1.4%). Both segments lost occupancy but group ADR gained at a good clip at 3%.
4. Pipeline data
The number of rooms in construction increased 4.5% year over year in January to 196,000 rooms. Last month, I said that we should keep an eye out on this number to see how it moves and/or accelerates.
5. Comments about the top 25 markets
Demand in the U.S. top 25 markets was flat (0.0%), and since supply growth is concentrated in those large markets (+2.7%) occupancy declined accordingly (-2.7%). ADR growth was non-existent—or I guess existed but was very small (+1%). RevPAR declined 1.5%. But still, despite being a slow month and declining performance, the occupancy in those larger markets was 62.8%.
If the average RevPAR decline is 1.5%, it implies that a lot of markets had much worse performance. A total of 14 markets of the top 25 lost RevPAR. Here are the markets that registered the strongest RevPAR declines:
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.