Hotel Sector Faces Inflection Point
The U.S. hotel sector reported mostly positive results in its three main performance metrics during August, but some analysts say the sector faces an inflection point as its pipeline swells.
STR, Hendersonville, Tenn., said U.S. hotel occupancy remained flat in August at 71.4 percent. The average daily room rate has increased 0.9 percent to $132.47 since August 2018 and revenue per available room increased 0.9 percent to $94.55.
“Even though room demand was once again strong with two million more room nights sold than last August, occupancy was flat when compared with last year,” said STR Senior Vice President of Lodging Insights Jan Freitag. He called hotel room supply and demand growth in “rough equilibrium” at the moment.
“Over the first eight months of the year, average daily room rate growth has been below or just at the level of inflation, which creates quite a bit of pressure on profit margins,” Freitag said. “This is a trend we’ve seen across chain scales and classes and we do not expect the fundamentals to change much moving forward.”
Cushman & Wakefield, Chicago, said the hotel sector still reported positive revenue growth as of mid-year, but noted second-quarter data was lower than early in the year. “The trend suggests we have reached a point of inflection with general uncertainty about the direction of future performance,” Cushman’s U.S. Lodging Overview report said.
Cushman said the supply of new hotel rooms should continue to expand.
Lodging Econometrics, Portsmouth, N.H., agreed many more guest rooms will deliver shortly. Its Hotel Pipeline report said the global hotel construction pipeline recently reached a record high 14,051 projects with 2.327 million rooms, a 9 percent increase in projects and an 8 percent increase in rooms year-over-year.
“Low interest rates and accommodative lending terms are the primary catalysts behind [hotel] pipeline growth as the global pipeline should continue to grow for the foreseeable future, albeit at a much slower pace,” Lodging Econometrics said.
The U.S. leads worldwide hotel construction with 5,653 projects and 693,207 rooms in the pipeline, just 230 projects shy of the record-high 5,883 projects set in second-quarter 2008. The U.S. currently accounts for 40 percent of hotel projects in the global construction.
“On a national basis, market participants are anticipating that revenue growth will continue to moderate while expenses increase and overall profitability will tighten,” Cushman said. “Hotel owners and operators are strategizing about managing through a potential downturn but also recognize that the cyclicality of the industry provides opportunities in the anticipated future recovery.”
