Gradual Slowdown Seen in Hotel Performance

June 6, 2019

The hotel sector faces declining occupancy in both 2020 and 2021 as supply increases faster than demand, predicted CBRE Hotels, Atlanta.

CBRE Hotels predicted hotel occupancy will remain flat at 66.2 percent this year, then decline to 65.7 percent in 2020 and 64.6 percent in 2021.

R. Mark Woodworth, Senior Managing Director with CBRE Hotels, called it unsurprising that hotel owners will realize a bit of a slowdown “after 10 consecutive years of occupancy expansion.” He cited the lodging industry’s cyclical nature.

Despite the anticipated declines, the national occupancy level will likely remain at least 200 basis points above the long-run average through 2023, Woodworth noted. For context, STR, Hendersonville, Tenn., reported U.S. hotel occupancy averaged 62.5 percent from 1988 through 2018. “This provides a cushion should economic and market conditions take a severe turn for the worse,” Woodworth said.

Woodworth noted lodging demand closely follows the national economy’s health. CBRE projects U.S. Gross Domestic Project will decelerate from 2.2 percent this year to just 0.7 percent growth next year. Because lodging demand typically lags GDP changes by a year, CBRE’s annual hotel sector growth rate forecasts are 2.0 percent this year, 1.1 percent in 2020 and only 0.1 percent in 2021.

STR also reported U.S. hotel profits reached a record-breaking $80 billion last year even as labor costs grew faster than revenues. Sector revenues topped $218 billion last year, up $10 billion from 2017. Just like the industry-wide house profit, the total revenue figure set a new record for the industry.

Overall, gross operating profits increased 2.8 percent on 2.9 percent total revenue growth, STR said.

“Although expenses continued to outpace revenue in terms of growth, 2018 produced stronger profits than expected.” STR Senior Director of Consulting and Analytics Joseph Rael said. “[But] maintaining profitability will be a challenge moving forward with flattening occupancy levels, diminished pricing confidence and low unemployment creating a smaller talent pool and higher wages.”