Freitag’s 5: 2017 out like lion with strong December
Freitag’s 5: 2017 out like lion with strong December
29 JANUARY 2018 9:07 AM

U.S. hotel performance in December was surprisingly strong in most respects. The one dark spot was group demand, for which December is a typically bleak month.

HENDERSONVILLE, Tennessee—2017 ended on a very strong note and this bodes well for the year ahead. We updated our 2018 forecast and at the Americas Lodging Investment Summit released out first look at 2019.

Here are a few key numbers in U.S. hotels’ December performance.

1. RevPAR, demand surge
December roared like a lion, and revenue per available room increased 4.6%, the second-strongest growth in 2017; this was after the March increase of 5.1%, but that was because of the Easter calendar shift. December marked the 94th month of consecutive RevPAR growth, so we are close to an eight-year cycle and really see no end in sight.

Demand increased 4.3%, the second-strongest growth in the last 35 months—again, just behind the March increase of 4.5%. So, demand grew faster than in any month in 2016 and in 11 months of 2015. Given where we are in the cycle, this strength is really a bit surprising.

2. Skewed by Texas, Florida
That said, here is the table that I have been showing for the last three months, which offers a look at the total U.S. and then the U.S. data without Florida and Texas:

So it seems obvious that the U.S. results are skewed mightily by Texas and Florida. Of course, given that it is Q4, that’s not a big surprise because that is when Florida does well, historically. But I think magnitude of demand and RevPAR growth attributable to the states is noteworthy.

And it’s interesting that the underlying U.S. RevPAR numbers were actually quite similar in the last three months, despite the fact that demand growth increased noticeably. If supply growth stayed basically the same during that time, I guess that points to ever weakening average-daily-rate changes. But I digress.

3. Dead zone for group demand
Group RevPAR declined 2.5%—with flat ADR—and transient RevPAR increased 3.9%. The funny thing is hotels have had a really hard time hanging on to groups in December. Group demand has declined each December since 2014:

As I said before, lack of pricing power is the conundrum of the industry right now and for the foreseeable future, especially since we project ever fuller hotels. ADR growth has deteriorated markedly in the last six months of the year, and December is no exception. Transient ADR growth—if you want to call it growth—was 1.3%, and group room prices did not change at all from last year.

And in the last six months, Transient ADR only increased 0.6%. That does not buy you a whole lot of profit, given that expenses are rising at roughly double that speed.

4. December gives full-year numbers a boost
In 2017, the U.S. hotel industry had more rooms available than ever, sold more rooms than ever, generated more room revenue than ever and recorded the highest occupancy, ADR and RevPAR ever! So, all absolute values are at an all-time high.

Because December was so strong, the full year ended with RevPAR growth of 3%, well above the 2.3% I had presented at the ALIS conference in January 2017. We missed the 2.7% demand growth by a long shot (projected: +1.7%) and expected much more pricing power than the measly 2.3% ADR growth (projected: +2.8%). We did also slightly overstate the supply growth (projected: +2%) which was actually 1.8%. So, lesson learned.

The long-run U.S. RevPAR growth average back to 1989 now stands at a 3.3% increase, so the 2017 result was a tad lower than that. Let’s say that 2017 was basically average.

5. RevPAR slowdown ahead
At ALIS 2018, we presented our new forecast, which takes into consideration the stronger economy and a bit more pricing power. Hey, it has to happen eventually.

So, our forecast now suggests that 2017 was a high watermark and that RevPAR growth, while healthy, is slowing.

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.

1 Comment

  • Mike Henry January 30, 2018 4:55 PM Reply

    As always great insight Jan!

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