Hotels See Lowered RevPAR Forecast
Decelerating lodging fundamentals and signs of fatigue signal a potential negative turn ahead for hotels, reported Fitch Ratings, New York.
“We had expected revenue per available room to accelerate modestly during the remainder of the year,” said Fitch Ratings Director Stephen Boyd. “However, lodging fundamentals are softening and RevPAR growth continues to decelerate.” He noted that 2016 will likely finish below the low end of Fitch’s original 4 percent to 5 percent estimate.
Fitch projected U.S. hotel RevPAR to increase between 3-4 percent this year and by 1-2 percent next year, with monthly comparisons possibly turning negative during 2017’s second half.
“We expect 2018 to mark the first full year of RevPAR declines, assuming the historical six-to-12-month lag relationship between occupancy and RevPAR declines holds,” Boyd said. “U.S. hotel occupancy will likely end 2016 down slightly.”
Boyd said that weak corporate transient demand will likely weigh on industry growth into 2017. Consumer transient travel demand remains a bright spot, but the strong U.S. dollar, higher oil prices and geopolitical events could weigh on leisure travel, he said.
Ratings firm Trepp, New York, agreed. “After closing 2015 with strong hotel metrics and peak occupancy numbers, the U.S. hospitality industry has reached a point in the current cycle where growth in average daily room rates and revenue per available room is slowing down,” Trepp said in a special report, Has the Lodging Recovery Stalled? “New supply is beginning to outpace demand and sluggish GDP and inflationary growth recorded so far this year have caused many industry experts to reduce their projections for the rest of 2016.”
STR, Hendersonville, Tenn., said 2016 marked the industry’s first year-over-year occupancy decline in more than six years and the lowest RevPAR growth since the recovery started in 2010.
“Another source of concern for the industry is the rising influence of the sharing economy,” Trepp said. “Highly successful sharing-based startups such as Airbnb and Uber have chipped away at the market share of traditional business vendors [such as hotels].” The report estimated in the 12-month period ending August 2015, New York City’s lodging market lost more than $450 million in direct revenue and roughly $1 billion in potential construction investment due to competition from online accomodation broker AirBnB.
The delinquency rate for lodging loans, which averaged 2.82 percent for the past 12 months, reached 3.08 percent in June, Trepp said.
“Major headwinds such as the recent slowdown in the global economy, a growing supply pipeline that’s exceeding demand and the rise of alternative lodging accommodations pose challenges for further growth in the hospitality industry,” Trepp said. “[But] while the sector is expected to experience some cyclical deceleration in the coming months, the overall hotel industry is on an upswing and has been operating at peak performance levels.”
