2017 Hotel Outlook: ‘Marginally’ Positive

Hotel selling prices have declined from their 2015 record highs, but sector fundamentals should remain marginally positive next year, analysts say. 

Lodging Econometrics, Portsmouth, N.H., noted 671 hotel sales transactions across the country year to date. The average selling price per room equaled $136,934, down 13 percent from the $156,471 peak in third-quarter 2015.

“Selling price declines were experienced across all chain scales, hotel locations and property sizes,” Lodging Econometrics said, noting that larger hotels with 200 rooms or more saw 26 percent declines year-over-year. Resort locations experienced a 37 percent drop, while hotels in central business district locations and in the top 25 markets fell 12 percent and 13 percent, respectively, from last year’s peaks.

But hotel sector fundamentals should remain ‘marginally’ positive next year, predicted Fitch Ratings, New York. Fitch said U.S. hotel revenue per available room should grow between 1 percent and 2 percent during 2017.

“Solid leisure travel and healthy group demand will offset weak corporate transient [individual room] demand,” Fitch said.

John Hach, Senior Industry Analyst with TravelClick, New York, agreed with Fitch’s assessment. “Even with the slowing [individual room] reservation pace this month, especially within the business segment, hoteliers should look to the New Year for a promising outlook,” he said. “Group occupancy and booking pace in particular are showing notable signs of improvement in 2017, especially within the first quarter.”

Hach noted that hotel “committed occupancy”–individual and group rooms reserved divided by capacity–growth continues in most North American markets, and the decline in new reservations seen throughout the past two quarters is beginning to flatten. “This environment amplifies the need for hoteliers to compete for bookings well into the upcoming New Year, and it’s especially important for hoteliers to invest and leverage advanced pacing business intelligence solutions to maximize revenue per available room within their local markets,” he said.

Fitch Ratings said it expects to see more merger and acquisition activity next year, especially among hotel real estate investment trusts, as smaller participants seek scale. This could weaken credit metrics for buyers and targets, the ratings agency said.