CBRE: 2017 Hotel Outlook a ‘Mixed Bag’

This year offers “mixed blessings” for U.S. hotels, with near-record occupancy levels projected but average daily room rates that will likely continue to level off, predicted CBRE Hotels, Atlanta.

CBRE said the U.S. lodging industry will likely achieve a 65 percent occupancy rate in 2017 compared to 65.3 percent in 2016. Both of these marks fall just shy of 2015’s 65.4 percent record occupancy level.

“Conventional wisdom says that at such high occupancy levels, hoteliers should have the leverage to implement strong price increases,” said CBRE Hotels Senior Managing Director R. Mark Woodworth. “However, like for much of 2016, you need to throw conventional wisdom out the window.” 

Despite the strong occupancy levels, CBRE forecast average daily room rates to increase just 3.3 percent in 2017. Average daily room rate growth has fallen since 2014 and will likely continue to weaken through 2019, it said.

“Movements in ADR do vary by location and chain-scale,” Woodworth noted. “The northern California markets of Sacramento and Oakland, along with Washington, D.C. and Tampa, are projected to lead the nation.” He noted that ADR gains could exceed 6 percent in those markets during 2017. “Further, lower-priced independent properties, which have lagged in their recovery, are starting to see some meaningful increases in room rate,” he said.

CBRE attributed overall ADR growth sluggishness to several factors, including major hotel brands aggressively promoting direct website bookings to draw business away from third-party intermediaries such as Airbnb. Weekend leisure travelers also comprise a larger portion of total lodging demand than in the past; these guests tend to be more price-sensitive.

“Complicating matters in 2016 was the elevated level of economic and political uncertainty felt by the business community and consumers,” Woodworth said. “Without knowing the outcome of the election, the direction of the Fed with regard to interest rates and the growing strength of the dollar, we sensed that companies and individuals held back on their commitments to spend more on meetings and travel.” 

Cornell University Real Estate Professor John Corgel cited several reasons for hotel-sector optimism. “If you look at the recent economic indicators, you see increases in retail sales,
auto sales, building materials and health and beauty products,” said. “In short, people are spending on themselves, and that bodes well for travel.”

Corgel noted that an individual hotel’s performance is closely tied to its local economy. “I see a great deal of public and private developments occurring around the country, and even more might take place if spending for infrastructure projects is approved by Congress,” he said. “Hotel managers should identify areas in their communities where this development activity is occurring and they will find new sources of demand.”