CBRE: Hotel Sector Performance Appears ‘Sustainable’ Through 2019
The U.S. lodging industry could see continued record occupancy through 2019, predicted CBRE Hotels, Atlanta.
If achieved, this would mark 10 years of uninterrupted growth in this metric–something not seen in 80-plus years, CBRE Hotels said. The firm predicted average hotel occupancy–which reached 65.9 percent this year–will remain essentially at this level through the end of the decade.
“Given the encouraging signs concerning the domestic economy, continued increases in lodging demand and the measured growth in supply, occupancy levels are expected to remain at their peak in the years ahead,” CBRE Hotels Senior Managing Director R. Mark Woodworth said. He noted U.S. GDP, employment and income growth for the next two years should support lodging demand growth of two percent or more per year, which slightly exceeds expected supply increases over this period.
“If we continue to see upgraded expectations for the economy, demand growth may exceed these expectations and all industry participants will benefit as a result,” Woodworth said.
STR, Hendersonville, Tenn., said the U.S. hotel industry reported positive performance last week. Occupancy rose 2.7 percent to 60.7 percent, the average daily rate increased 4 percent to $125.07 and revenue per available room rose 6.8 percent to $75.97.
“The U.S. lodging industry reached its ‘escape velocity’ back in 2014,” Cornell University School of Hotel Administration Professor Jack Corgel said, referring to the speed needed for an object to escape the Earth’s gravitational pull. “U.S. hotels returned to their previous peak occupancy levels that year and arguably have moved to an even higher orbit with the record occupancy expected for 2017.”
Corgel predicted hotels will sustain a “very high” performance level. “Looking at all the economic and market factors that could influence hotel performance in the future, if the industry were to jettison itself from its current glide path, the trajectory would more likely be upwards, not downwards,” he said.
Despite record occupancy, the sector faces some challenges, CBRE Hotels Hospitality Market Update said. “Factors such as increased supply growth, low inflation, the sharing economy, revenue management beyond RevPAR and book-direct, best-price guarantees all put downward pressure on the ability of operators to raise [average daily room] rates,” the report said. CBRE forecasts a 2.2 percent annual ADR increase in 2017 followed by 2.5 percent next year. Both measures would fall below the 3.1 percent long-run average annual ADR growth rate.
“Low ADR growth could have an impact on the profitability of hotels,” the report said. “With compensation costs rising more than 4 percent [annually], hoteliers may not be able to sustain the growth in profit margins observed the past seven years.”
Woodworth noted hotels still should be able to enjoy gains on the bottom line, “but [on average] the flow-through will not be as efficient,” he said.
