Hotels Aim for 10th Consecutive Year of Growth in 2019

Hotel sector analysts predict the nation’s hotels will enjoy a 10th consecutive year of growth in 2019, but at a slower pace than seen in 2018.

Based on an upward revised outlook for the U.S. economy, CBRE Hotels, Atlanta, predicted U.S. hotel occupancy will rise 10 basis points to 66.2 percent next year, which would be a fifth straight record year for this metric. The expected occupancy growth is primarily driven by a projected 2.1 percent demand increase–more than enough to offset the estimated 1.9 percent net supply increase next year.

In a joint report, STR, Hendersonville, Tenn., and Tourism Economics, Wayne, Pa., projected a 2.3 percent lift in average daily room rates next year to $133.04 and a 2.4 percent revenue per available room increase to $88.07.

“It all starts with the demand for lodging accommodations. Without leisure, corporate and group travelers on the road seeking hotel rooms, there is no need to worry about all the other performance metrics,” said CBRE Hotels Americas Research Senior Managing Director R. Mark Woodworth. He noted the average annual gain in accommodated room nights in the U.S. equaled 2.0 percent from 1988 through 2017. “For 2018 and 2019, we believe demand growth will exceed this long-run average,” he said.

STR President and CEO Amanda Hite said despite known issues such as rising hotel labor costs, the sector is still growing. “The macroeconomic environment remains favorable overall and the industry’s record-breaking run should continue through at least 2019 even with softening in overall growth,” she said.

CBRE Hotels Americas Research senior advisor Jack Corgel said the firm recently increased its outlook for U.S. gross domestic product growth for both 2018 and 2019 based on the fiscal boost from last year’s tax law changes, capital spending, improving wage growth and consumer confidence. “We have already seen the positive influence these factors have on the economy and the lodging industry in 2018,” he said. “The impact will persist in 2019.”

CBRE Hotels does not forecast any economic or lodging industry recessions through 2022. But industry growth is likely to curtail beyond 2019 as higher interest rates, equity market corrections, credit-market problems and some shrinkage in employment could occur in late 2019 and 2020.

“The year 2021 seems far away for most industry participants, however, those with an ownership interest need to be planning their future investment strategies,” Woodworth said. “In the meantime, the magnitude of profit growth may not be spectacular, but the probability for revenue growth is solid, and operating margins remain well above historical levels.”