Hotel Sector Shakes Off Wall Street Stumbles

Recent stock market gyrations will not derail the hotel sector’s strong performance, reported PKF Hospitality Research, Atlanta. 

U.S. hotels will continue to enjoy above long-run average revenue per available room growth through 2018, PKF said, reaffirming its near-to-mid-term forecast for strong lodging financial performance.  

“It’s hard to ignore what has been happening on Wall Street, but the forecasts of employment and income that we rely on to prepare our estimates of future lodging supply, demand and average room rates remain strong,” said PKF-HR Senior Managing Director R. Mark Woodworth. 

Woodworth said recent stock market volatility proves that economic uncertainty persists. ” However, the probability of a downturn in hotel industry performance remains remote,” he noted.

The industry did record negative results in all three key performance measurements last week, reported STR Inc. Occupancy decreased 6.4 percent year-over-year to 63.8 percent. Average daily room rates for the week fell just over one percent to $116 and RevPAR dropped 7.5 percent year-over-year to finish the week at $74.

“RevPAR growth for Sunday was strong due to transient travel over the Labor Day weekend,” said Brad Garner, STR’s senior vice president for client relationships. “However, that growth dropped sharply on Monday and Tuesday due to a lack of business travel around Labor Day. As the week progressed, the numbers gradually improved.”

PKF-HR said U.S. hotels remain in a strong position to absorb any expected performance retraction. Lodging demand growth exceeded supply increases ever since the depths of the great recession in 2009 and should continue to do so through 2016, the firm said.

“In real terms, prices are just now returning to their previous peak,” Woodworth said. “The U.S. occupancy level is now a full three points above the 2007 mark. This performance premium represents a substantial cushion that should offset an unexpected decline in demand.”

Hotels in airport and suburban areas should achieve the strongest RevPAR gains this year, said John Corgel of Cornell University’s School of Hotel Administration. “In several markets, the continued return of large conventions is now causing a compression that is forcing demand out of the urban core and into the suburbs. Further, recent ADR growth in 24 airport submarkets that we track is up by six percent or more.”

Woodworth said hotel owners and lenders cannot ignore the headlines about stock market fluctuations entirely. “They remind us that there is some level of uncertainty out there,” he said. “However, the economic fundamentals that drive lodging demand are a story well worth reading.”