Hotel Performance Seen Decelerating Through 2020

An expected slowdown in the nation’s economy has CBRE Hotels Research lowering its outlook for the lodging sector.

CBRE lowered its hotel revenue per available room forecast for both 2019 and 2020. “As a result of the rapidly changing prospects for the nation’s economy, we have adjusted our forecasts of lodging demand and average daily rates appropriately,” said CBRE Hotels Research Senior Managing Director R. Mark Woodworth.

CBRE projected second-half GDP growth to slow by half compared to the January-to-June figures. As a result it forecasts a deceleration in U.S. lodging performance during the final months of 2019. After rising by 2.1 percent in the first half of the year, the pace of demand growth could slow to 1.4 percent for the balance of 2019. CBRE now forecasts the national occupancy level to decline by 0.2 percent from 2018 to 2019.

“Fortunately, room rate alterations tend to lag occupancy changes,” Woodworth said, noting he predicts the annual increase in ADR will remain steady at 1.1 percent. For the year, CBRE now projects a RevPAR increase of just 0.9 percent, down more than a full percentage point from the forecast the firm published in June.

STR, Hendersonville, Tenn., said a steady stream of new supply muted occupancy growth and influenced already weak hotel room pricing confidence in July. “ADR growth, which continues below the rate of inflation, has reached one percent or higher just twice this year,” STR Senior Vice President of Lodging Insights Jan Freitag said. “Our revised forecast [released August 15] projects further slowing in performance through 2020.”

CBRE predicted the 2019 demand slowdown will show its negative impact on ADR next year. It lowered its forecast for 2020 ADR growth to 2.0 percent. “Downward pressure on room rates also will come from a rise in new hotel openings,” Woodworth said, noting his firm’s 2020 supply growth forecast is now 2.1 percent, significantly greater than the 1.8 percent long-run average. This will likely drive a 0.8 percent national occupancy rate decline for the year.

“To put things in context, however, [hotel] profit margins and cash flows are at record highs, so there is some cushion on the bottom-line to absorb the forecast slowdown in the economy and the lodging industry,” Woodworth said.