High demand delights hoteliers

National Report – Numbers don’t lie—and that’s a good thing for the hotel industry’s foreseeable future, according to speakers at this year’s Hotel Data Conference in Nashville, Tenn. In particular, 2014 has been a banner year, largely thanks to what STR President and COO Amanda Hite called “the incredibly high demand numbers” the industry saw in the first half of the year.

For example, STR VP Vail Brown cited June’s occupancy level of 71.7 percent, or “the highest June occupancy this century,” she said, driven largely by transient demand, though steadily increasing group demand has contributed to the overall picture.

“Group didn’t recover as quickly as we thought it would, and then it all of a sudden picked back up,” Brown said. “In June [the industry], sold 1.5 million more group rooms than it sold in June of 2013 and we’re finally in the positive.”

This demand boom, coupled with still relatively low supply growth, factored into STR and PKF Hospitality Research’s revised forecasts for the remainder of 2014 and 2015 (see chart on page 1).

To close out 2014, STR revised its supply forecast down from 1.2-percent change to 1-percent change, and increased the demand forecast from 2.6 percent to 3.6-percent change. PKF gave a sneak peek of its updated forecast, showing supply closing out the year at 0.9-percent change and demand up 3.7 percent.


Rate is another metric on the way up. STR forecasts year-over-year average daily rate growth of 4.2 percent this year, while PKF has ADR up 4.5 percent to close out 2014. That ADR number represents “good, solid rate growth,” according to Hite. “We’re looking at a good 36 months of strong demand, RevPAR and rate growth, with opportunity for even more rate growth,” she said.

PKF-HR’s Director of Research Information Services Robert Mandelbaum agreed. “A year ago we were saying 2017 was when RevPAR would start to slow down, but now we think there’s potentially a three- to four-year window [of steady growth.]”

Group business has been another 2014 success story, according to Hotel Data Conference speakers.

Katie Moro, director of business intelligence for TravelClick, said the company is tracking bookings up 3 percent year over year, including group and transient. “Positive group growth is always a good thing,” she said. “I think the behavior of group business is very telling of what’s to come.”

Hite concurred, saying STR saw positive growth in the group business segment this year for the first time since 2012—up about 2 percent over a 12-month moving average and up about 4 percent for the first few months of 2014.

Part of that might be due to the return of certain types of group business that are coming back for the first time since the recession, Hite said.

In terms of channel distribution, Moro shared that “while OTA year-over-year room night growth continues to grow, still, the direct hotel channels are leading the way as far as occupancy contribution.”

She advised hoteliers to look at those numbers and make sure direct booking channels are performing at their best.

“A lot of your business is coming from brand.com,” she said. “How are your websites functioning to make sure you’re taking advantage of the fact that people are buying online?”


According to STR, the U.S. markets with the highest demand growth year to date by June were Denver (up 10.7 percent), Nashville (up 8.5 percent) and Atlanta (up 8.1 percent).

That overall strong demand should lead to good 2014 year-end RevPAR forecasts as well. STR data show Nashville ending the year with RevPAR up 15 percent, with plenty of other MSAs finishing with RevPAR up.

➔ 15 percent

International guests made up 15 percent of U.S. room demand in 2013 and are projected to make up 19 percent in 2020.

Source: Tourism Economics

Segment-wise, demand far outpaced supply across all segments through June at least, according to STR. Notably, the midscale segment clocked in with zero supply change in June (on a 12-month moving average), while demand grew 2.7 percent during that time period.

Why are times so good now for hotels anyway?

So why are the stars aligning and shining favorably on the hotel industry these days? Turns out, the answers are a little more earth-bound, according to Tourism Economics President Adam Sacks, but no less extraordinary.

“What is it that has made now such an extraordinary time and what does it tell us about where we may be headed as an industry?” Sacks asked the crowd at the Hotel Data Conference. “Historically, room demand and GDP tend to move in the same direction, but look at 2014, where GDP has been on a yo-yo path, while room demand paid no attention to any of that and increased 4 percent. This performance has exceeded everyone’s expectations, even the analysts.”

According to Sacks’ data, hotel room demand is well above employment trends, and the hotel sector is topping consumer spending across all sectors.

The factors behind what Sacks calls 2014’s “extraordinary performance”:

* Strong gains in personal wealth.

* Continued stellar performance in corporate profits.

* Growth in laggard sectors.

* Resurgence of group demand.

* Residential power outages.

* Rebound from the government shutdown.

While 2014 will shape up to be an unforecasted-for landmark year, Sacks said performance will temper out moving into 2015.