Hotel Summer Forecast: Record Demand, Low Room Rate Growth

The U.S. hotel industry could experience record-breaking room demand but low room rate growth this summer, reported STR, Hendersonville, Tenn.

The number of rooms sold during the summer months should increase by 2.1 percent year-over-year, STR said. But a healthy supply pipeline should lead to a 1.7 percent increase in the number of rooms available, keeping occupancy growth muted. Additionally, hoteliers do not expect to increase prices at the same level as last year, said STR Senior Vice President for Lodging Insights Jan Freitag.

“Average-daily-rate growth, while still positive, is certainly not as strong as we first expected,” Freitag said. He noted that STR forecasts summer ADR growth in the 4 percent range. “We expect that muted macroeconomic growth will have a small positive impact on employment and corporate profit numbers. With that growth should be the desire for the American public to travel and for managers to send their people on the road.”

Freitag called last August’s revenue-per-available-room growth “moderate” at 1.8 percent, “creating the opportunity for August 2016 to be comparatively stronger.” He said STR projects RevPAR will grow 4.4 percent this summer.

Cushman & Wakefield Managing Director of Valuation & Advisory Elaine Sahlins said the hotel market continues to experience strong fundamentals. “While some industry pundits are expressing concern about the new supply, demand growth continues to outpace supply,” she said.

Sahlins noted that the hotel sector is well into a construction cycle, “and [we] are seeing hotel projects and construction costs continuing to escalate,” she said. “The availability of skilled labor and competition with the development of other property types means higher costs for new projects.”

Still, hotels should remain one of the most active commercial real estate sectors for construction over the next few years, Sahlins said, noting STR’s prediction that at least 865 hotels with 103,230 rooms will open in 2016. “While the hotel industry is notoriously cyclical, with the expectations of strong occupancy and rate growth this year, the volume of new hotel development is being driven by its expected feasibility in many markets throughout the country,” she said.