Forecast Sees Further Slowing for U.S. Hotels

Performance growth projections for the U.S. hotel industry are slipping, two sector analysts said.

STR, Hendersonville, Tenn., and Tourism Economics, Wayne, Pa., recently updated their joint hotel sector forecast. In June the firms predicted revenue per available room growth would equal 2.0 percent this year and 1.9 percent in 2020. Their new forecast lowers those RevPAR predictions to 1.6 percent for 2019 and 1.1 percent next year.

With hotel occupancy remaining nearly flat, average daily room rates are now the sole driver of industry standard performance metric RevPAR, the report noted.

“We continue to see ADR rise below the level of inflation even as the industry operates in the highest demand and occupancy environment in history,” said STR President and CEO Amanda Hite.

Hite said hotel owners and operators lack pricing confidence even during these peak summer months, which led STR and TE to downgrade their ADR projections by 50 basis points for 2019 and 80 basis points for 2020. “Those projected decreases correlate with a downgraded GDP forecast and lead to an obvious reduction in our RevPAR projection,” she said.

Supply growth remains “manageable” from a national perspective, “but there are plenty of major markets and several segments–select-service mostly–that have seen the negative effects of new inventory even with consistent demand,” Hite said. “We’re still in a RevPAR growth cycle for now, but driving profit is a real challenge for many properties around the country.”

The 2.9 percent RevPAR increase recorded in both 2018 and 2017 was the lowest RevPAR percentage change for the country since the Great Recession, STR and TE said.

Jerod Byrd, Managing Director and Senior Partner with HVS, Westbury, N.Y., said lenders’ appetite for hotels remains strong even though year-over-year transaction activity fell during 2019’s first half due to waning RevPAR growth. “The decelerating [RevPar] growth, in conjunction with rising labor costs, should result in hotel values remaining generally stable through 2020,” he said. “For the near term, hotel owners should assume value appreciation to come in the form of asset operating efficiencies and not necessarily from market growth.”