Hotel Sector Healthy, But Supply Peak Looms

The hotel sector started the year at a healthy pace, but supply growth will likely peak later this year, analysts say.

“The industry started 2018 just like it ended 2017–with each of the key performance metrics at record levels,” said STR Senior Vice President of Lodging Insights Jan Freitag. He noted hotel room occupancy rose 0.9 percent to 54.5 percent in January, average daily room rates rose 2 percent to $123 and revenue per available room increased 2.9 percent to $67.

January’s RevPAR growth means that metric has now increased on a year-over-year basis for 95 consecutive months, STR reported.

“Year-over-year RevPAR growth remained modest and driven primarily by average daily room rates,” Freitag said.

Hotel room supply grew at a 2 percent rate in January, but a 2.9 percent rise in demand was more than enough to counter that, STR said.

Looking ahead, CBRE Hotels, Atlanta, predicted more than 100,000 hotel rooms will come online this year, the largest number of new rooms to enter the market since 130,000 rooms delivered in 2009.

“The national changes in supply are less than what we observed during the latter year cycles of the 1980s, 1990s and 2000s, so the national occupancy levels are still at peaks,” said CBRE Hotels Senior Managing Director R. Mark Woodworth.

Woodworth said a look at local markets illustrates how new supply can quickly change occupancy and average daily rates. He said 42 of the 60 markets studied will likely see supply grow above the 2 percent national average rate. “These are the markets most vulnerable to negative impacts on performance,” he said.

In the 42 markets CBRE forecasts will see more than 2 percent supply growth, occupancy levels could decline by 0.6 percent on average. Hotels in the markets expected to see a supply change under 2 percent should experience increases in both occupancy and ADR, CBRE said.

“Beyond 2018, we are expecting the pace of new hotel construction to hover around the 2 percent mark, but the number of net new rooms per year will taper,” Woodworth said. “This is the natural progression after years of slight occupancy declines and decelerating ADR.”