Now more than ever, hotel owners are eyeing the nation’s primary and secondary markets for development. According to the September 2019 edition of Hotel Horizons, CBRE Hotels Research is forecasting 112,262 net new hotel rooms to enter the U.S. lodging inventory during 2020. Of these, 100,224 (89.3 percent) rooms will open in the 60 major markets covered by CBRE’s Hotel Horizons reports. This is the highest percentage observed for this metric since STR began tracking the U.S. lodging inventory in 1988.
In 2020, CBRE projects occupancy levels to decline in 48 of the 60 Horizons markets, implying that gains in demand will not keep pace with all the new supply. Providing some solace to the owners is the fact that growth in demand does appear to be influenced by changes in supply. Four of the markets forecast to experience the greatest gains in supply also are expected to benefit from the greatest growth in demand. Conversely, in the five markets that will see the least new competition, demand is forecast to decline in three of them.
The following paragraphs highlight the highs and lows of performance forecast for 2020 in the 60 Hotel Horizons markets.
Supply and Demand
The San Jose-Santa Cruz, Calif., market is forecast to lead the nation in supply growth with an increase of 9.2 percent, followed by Austin, Texas, with a gain of 8.6 percent. The average number of rooms in the development pipeline in San Jose-Santa Cruz is 139, while Austin’s pipeline projects average 122 rooms in size. This indicates that limited- and select-service properties dominate the pipeline in these two markets. Three of the markets projected to see the greatest percentage increase in supply are located in the Southeast. Savannah, Ga.; Nashville; and Charlotte, N.C.; will experience supply gains greater than 7 percent.
Hotel developers appear to be avoiding the relatively small markets of Albuquerque, N.M.; Hartford, Conn.; Pittsburgh; and Newark, N.J. Supply growth in these cities will be less than 1 percent in 2020.
As noted before, 2020 makes a good case for the theory that supply induces demand. Hotels in Austin, San Jose-Santa Cruz, Savannah and Charlotte will benefit from demand growth in excess of 5 percent. This will offset the significant growth in new competition in these markets. Unfortunately for hoteliers in Long Island, N.Y.; Albuquerque; Newark; Tucson, Ariz.; and Hartford, lodging demand is expected to decline during 2020.
Occupancy and ADR
For 2020, CBRE is forecasting a 0.7 percent decrease in occupancy for the nation’s 60 major markets. Changes in occupancy are clearly influenced by the level of new supply. In the 48 markets forecast to suffer a decline in occupancy, the average increase in supply during 2020 is 3.9 percent. On the other hand, the markets forecast to enjoy an increase in occupancy will see a bump in new competition of just 3 percent.
Markets in the central region of the nation are forecast to achieve the greatest occupancy growth during 2020. Houston, Chicago and Denver hotels all are expected to benefit from a 1 percent rise in occupancy. Pittsburgh and Fort Lauderdale, Fla., hotels will enjoy occupancy gains of 0.8 percent and 0.6 percent, respectively.
Hotels in Nashville finally will see the negative impact from all the new competition entering this market over the past eight years. The market average occupancy is forecast to decline 2.8 percent in 2020, but the level will remain above 70 percent. The same holds true in Portland, Ore., and Oakland, Calif. Occupancy levels will exceed 70 percent in 2020 but will be more than 2 percent lower than 2019.
Temperatures and room rates will be hot in Miami, Phoenix and Tucson during 2020. All three markets, plus Raleigh-Durham, N.C., are forecast to see their average daily rate levels increase in excess of 3.7 percent during the year. Lagging in rate growth will be the big Northeast cities of Boston, Philadelphia and New York.
Eye on Supply
As U.S. hotel owners and operators collaborate on their budgets for 2020, keep an eye on supply. New competition clearly is a significant factor dictating major market performance in 2020.
CBRE Hotels Research wishes U.S. hoteliers the best of success for the remainder of 2019 and on into 2020.
Robert Mandelbaum is director of Research Information Services for CBRE Hotels Research. To learn more about the Hotel Horizons forecast reports for 60 markets in the United States, visit pip.cbrehotels.com or call (855) 223-1200.
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